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S sg a_axsater_retirement_needs_ii_9_2012
1. Understanding
Participant Needs
A Framework for Retirement Readiness
II Defined Contribution Symposium Fredrik Axsater
September 10, 2012 Head of DC Sales & Strategy
Half Moon Bay State Street Global Advisors
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2. Does the Solution Fit the Need?
Wants + Solutions = Outcomes
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6. Know Your Audience
Source: SSgA 2011 DC Investor Survey
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7. Know Your Audience
18-‐24
All
82% I
strongly
feel
my
401(k)
is
a
savings,
74%
not
a
spending
account
73% The
recent
vola-lity
prompted
me
to
37%
save
more
42% I
am
a
saver
23%
Source: SSgA 2011 DC Investor Survey
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8. Understand the Frame: Saving in Percentages
How do you determine
how much to save for
retirement?
(Check all that apply)
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Source: SSgA April 2012 DC Investor Survey 8
9. Don’t Underestimate Savings Potential
If you really had to tighten your belt, what percent could
you actually cut out of your household budget?
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Source: SSgA April 2012 DC Investor Survey 9
10. Use Automation
At about what percentage of your salary do you think
you would discontinue an automatic increase of 1% a
year that included the ability to opt out at any time?
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Source: SSgA April 2012 DC Investor Survey 10
11. The Action Gap: Understanding vs. Knowing
Think it’s Feel
important knowledgeable
about it
How to select a diverse mix of 65% 33%
investments
How to adjust my asset 67% 30%
allocation depending on my
investment timeline
How to determine how much I will 78% 33%
need to save to have a secure
retirement
How to make my retirement 82% 28%
savings last a lifetime
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12. Framework for Retirement Readiness
Participant Plan Retirement
+ =
Wants Design Readiness
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13. Understanding the Default
Participants who were
asked to evaluate target
date fund descriptions
I am not sure how a target 10%
date fund works
I am not familiar with target 39%
date funds
Source: SSgA April 2012 DC Investor Survey
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Source: Callan 2012 13
14. Avoid Investment Speak
Which of the following descriptions best helps you
understand how a target date fund works?
Target date funds are a diverse mix of investments like stocks, 33%
bonds an cash equivalents that periodically and automatically
adjust over time to grow more conservative as you near your
target retirement date
Target date funds are diversified investments that automatically 6%
adjust their asset allocation to reflect the risk and return
objectives based on an investment horizon
Target date funds are a single diverse investment fund that is 11%
managed by professional investment managers who adjust the
funds’ asset allocation in line with the target retirement date
None of these descriptions are helpful in describing target date 1%
funds
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17. Helpful Hints: Raising the Default Contribution Rate
From Fidelity Perspectives: Evaluating Auto Solutions, Summer 2009
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18. Saving: Divisible by Five
Match: Spike No match: Spikes at 5%, 10%, 15%
at 4% match
threshold
Source:
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Choi, Laibson, Madrian and Metrick (2006)
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19. Devise Easy Translation Tools
TRI-30 – An individual can multiply her target replacement income (TRI)
rate by 30% to determine an appropriate savings rate.
For example, if she wanted to replace 50% of her present income from
savings, she’d multiply 50% by 30% for a savings rate of 15%.
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Source: What’s the right savings rate? Russell Research; Daniel Gardner and Josh Cohen 19
20. Use Automation
No automatic enrollment
Automatic enrollment: 3% default
Automatic enrollment: 6% default
Source: Beshears, Choi, Laibson, and Madrian 2008
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21. Achieving Desired Outcomes with Auto-Enrollment
Early Enrollment and Participation Across Demographic Groups
Before Automatic Enrollment After Automatic Enrollment
Source: Madrian and Shea (2001)
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22. Framework for Retirement Readiness
Participant + Plan Retirement
=
Wants Design Readiness
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23. Framework for Retirement Readiness
1. Understanding your Participants’ wants
2. Defaults are important
§ Savings default
§ Investments default
3. Automate for success
§ Don’t underestimate savings potential
4. Framing your communication is important
§ No jargon or investment speak
§ Keep it simple
5. Periodic re-evaluation of plan design
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24. State Street Global Advisors Disclosure
The views expressed in this material are the views of SSgA Defined Contribution through
the period ended September 10, 2012, and are subject to change based on market and
other conditions. This document contains certain statements that may be deemed
forward-looking statements. Please note that any such statements are not guarantees of
any future performance, and actual results or developments may differ materially from
those projected. The information provided does not constitute investment advice and it
should not be relied on as such. It should not be considered a solicitation to buy or an
offer to sell a security. It does not take into account any investor’s particular investment
objectives, strategies, tax status or investment horizon. You should consult your tax and
financial advisor. All material has been obtained from sources believed to be reliable.
There is no representation or warranty as to the accuracy of the information, and State
Street shall have no liability for decisions based on such information.
Investing involves risk, including the risk of loss of principal.
Diversification does not ensure a profit or guarantee against loss.
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