The Status of

1

• The Status of
• Retirement Today
• Madge Bush, AARP Advocacy Director
• Presentation December 14th, 2009

2
Retirees Today

• Savings have some form of savings Stock,
  Savings Accounts
• Pensions
• Defined Benefit plans or Defined Contribution
  Plans
• Social Security
• About 50 of retirees over 65 years of age depend
  on SS as their single source of retirement income
• Work
• Many are continuing to work to supplement their
  income and plan to work longer

3
4 Pillars of Economic Security
Todays Discussion
Social Security
Continued Earnings
Pensions and Individual Savings
Adequate Affordable Health Insurance
4
Retirement Plans in United States

• Voluntary employer-based retirement savings
  system
• Provides coverage for about 50 of workers
• Coverage has been stagnant for past 20-30 years

5
Pensions

• Retirement Plan Access and Coverage
• Access to Employer-Provided Retirement Plans
• 60 of all workers have access to retirement
  plans
• 62 million or 50 of workers have some form of
  private pension coverage
• Workers employed in larger firms more likely to
  have access to retirement plans
• 44 percent of workers employed in firms under 100
  employees have access to retirement plans

6
Percent of Private Sector Workers access to
Retirement Plans

• Defined Contribution access is the trend for
  retirement plans
• 54 of workers have access to these plans
• In firms 100 employees or more, 78 have access
  to these plans
• In firms 1-99 workers, 41 have access to these
  plans
• Defined Benefit Plans Access are shrinking
• 21 have access to these plans
• In larger firms, 35 have access to these plans
• In firms 1-99 workers, 9 have access to these
  plans

7
Americans Save Too Little
Ron Wilcox
8
Americans Save Too Little
Ron Wilcox
9
Why Should We Care?

• A lot of people will find themselves poor in
  retirement.
• If we dont fund the government deficit, someone
  else has to
• China has an enormous savings rate which they
  save in dollar denominated assets
• Our dependence on foreign investments affects
  foreign policy decisions.

Ron Wilcox
10
Individual Savings in United States

• In 2002, 142 million Americans were eligible to
  make IRA contributions, only 15 million taxpayers
  did so.
• Individual savings in America bumped up recently
  but it is still really low.
• Why?
• Lack of knowledge and information about what is
  available
• Lack of long term planning perspective
• Inertia

11
The Retirement Boom

• Every seven seconds, another Baby Boomer turns
  50.
• By 2011, the first of this 78 million-person
  generation begins turning 65.

12
Scarce Retirement Resources

• Not enough of us will have the resources
• to retire.
• 75 million workers about half the workforce
  have no retirement plan at work.
• The national savings rate is at the lowest
• level since the Great Depression.
• Millions of Americans are retiring without much
  to live on but Social Security, which
  replaces on average about 40 of
  pre-retirement income.

13
What do we do?

• The opportunity to build lifetime financial
  security is something all Americans deserve.
• AARP is focusing on three big efforts
• Creating Opportunity ensuring that every worker
  has the opportunity to invest in a simple
  workplace savings program
• Making Saving Easy urging employers to make it
  easy for their workers to save
• Improving Understanding to Increase Savings
  educating workers about savings options and
  giving them tools they need to become
  financially secure

14
I. Creating Opportunity

• People who have access to a workplace savings
  plan are much more
• likely to save for retirement.
• AARP is supporting two initiatives
• Automatic I.R.A., which would give employers a
  simple, low-cost way to help employees build a
  nest egg.
• State-Assisted Savings, a state-level strategy
  that helps small, private-sector employers
  provide employees with a simple way to save for
  retirement.

15
Creating Opportunity (contd)

• Auto IRA
• Employees with more than 10 employees, in
  business for at least two years, who do not
  currently offer a retirement plan, would
  automatically enroll their workers into an IRA of
  the workers or the employers choice, or a
  default option.
• The money would come out of the employees
  paychecks automatically.
• Workers could choose not to participate, and they
  would be able to take their
• accounts with them if they change jobs.
• Employers receive a start-up tax credit to help
  offset the administrative costs.

16
Auto IRAs Good for Employers

• Small employers would be able to compete more
  effectively for
• talented employees, who might otherwise be drawn
  to large
• and medium-sized companies that already offer
  retirement
• savings plans.

17
Creating Opportunity (contd)
State-Assisted Savings
18
The Single Biggest Public Policy We Can Take to
Increase Savings?

• Public Policy Makers can act to make a better
  future for Virginians

Ron Wilcox
19
II. Making Saving Easy
AARP supports automatic saving features

• AARP supports auto escalation, which
  automatically
• increases the amount saved over time.

• Auto 401(k) is especially beneficial to women,
  minority, and
• low- income wage earners, now least likely to
  sign up.

• Employees can elect not to participate or not to
  increase their
• contribution.

20

• VEVA
• (Virginia Employee Retirement Accounts)
• is a Solution!

21
III. Improving Understanding to Increase Saving

• Its never too soon to begin teaching that every
  little bit helps
• when it comes to saving
• Example
• If a worker were able to contribute only 10 a
  week _at_ 6 interest, it
• would equal 20,000 in 20 years.
• Leave the money for 30 years, and it would grow
  to almost 43,000.

22
What is VEVA?

• VEVA is a payroll savings deduction plan whereby
  the state government takes on the new role of
  facilitator of low-cost retirement savings plans
  for small private employers that do not currently
  offer a retirement plan.
• VEVA is voluntary for both employers and
  employees.
• VEVA would improve the financial security of low-
  and moderate-income workers who most need help
  saving for retirement.
• Research strongly indicates that employees who
  have automatic payroll savings deductions
  available to them are more likely to save than
  those who do not.

23
Financial Literacy

• Americans need better, easy-to-understand
  information to help them
• manage their money wisely.
• At AARP, we want to help educate every American
  about

• Saving, even with a modest income
• How to select lenders and manage credit
• Managing debt
• Setting and reaching specific savings goals
• Avoiding financial pitfalls and scams

24
What You Can Do

• Get Engaged in this Improving the Savings Rate in
  the US
• Inform and Educate Consumers Today
• Talk with Stakeholders about how to change this
  conversation
• Engage Public Policy Makers in this Problem and
  Seek Solutions

25
Sources of DATA

• Analysis of Proposals to Broaden Private Pension
  Coverage and Retirement Savings through State-K
  ProgramsA Report Prepared by AARP by Optimal
  Benefit Strategies, LLC/2-2008
• Dr. Ron Wilcox, Professor at UVA School of
  Business
• AARP Public Policy Institute Presentations and
  Papers