IRI: Americans Are Not Prepared for Retirement

Less than half of Baby Boomers and members of Generation X have any retirement savings at all, while Millennials are more likely to be saving for retirement, with 68% contributing to workplace retirement plans, according to a new study conducted by the Insured Retirement Institute (IRI) on behalf of Jackson National Life Insurance Company.

The report said that studies on Baby Boomers and Generation Xers found that only about one in four consumers in each of those generations expect to receive income from a pension. Fewer than one in five consumers age 25-34 expect a pension to provide retirement income, and those under age 55 are the most likely to expect their savings to be a main source of retirement income.

“Americans of all generations, along with their advisors, are acutely aware they must save money now so they can generate income in retirement,” said the report. “Consumers and advisors agree today’s investors need to save now, save more, and create a plan for how they will use those savings to ensure they have adequate income during retirement and do not outlive their financial resources.”

The study found that as consumers get older and move closer to, or into, retirement, they seem to be more reluctant to look to their savings as a source of regular monthly income.

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“The dichotomy between consumers recognizing their need to use savings for retirement income and their growing reluctance to do so as they age may be explained both by a desire to preserve assets, and, for many, the lack of a clear strategy to convert a portion of their investable assets into guaranteed lifetime income—in other words, the lack of a comprehensive retirement plan, the report said.”

Across all age groups, the report found that more than half of consumers plan to dip into retirement savings by withdrawing money as needed to cover basic and discretionary spending, which it said carries a high risk of depleting assets, especially among those who live to an advanced age. Far fewer plan to transfer a portion of their savings to an annuity, or even set up a systematic withdrawal plan, the study found.

“Consumers ages 25-34 are the most interested in using an annuity-based approach,” said the report, “corresponding to this age group being both the most likely to say they plan to use their savings for income, and the least likely to say they expect to receive lifetime retirement income from a pension.”

Tags: Annuity, Insured Retirement Institute, Jackson National Life Insurance Company, Pension

The funded status of the 100 largest US corporate pension plans declined $17 billion in August, the largest monthly loss year-to-date, due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities, according to consulting and actuarial firm Milliman.

As measured by the Milliman 100 Pension Funding Index (PFI), the funded status deficit of the 100 largest corporate defined benefit pension plans rose to $298 billion in August from $281 billion at the end of July. The funded status decline was only partially offset by a 0.85% investment gain, and a $7 billion increase in pension assets. As of August 31, the funded ratio fell to 83%, down from 83.8% at the end of July, which places it below the 83.3% mark at the start of the year.

“The funded ratio for the Milliman 100 plans continues to teeter up and down during 2017, and now we find it below the mark set at the beginning of the year,” said Zorast Wadia, co-author of the Milliman 100 PFI. “It will be interesting to see how discount rates will change over the next few months and how the potential release of updated mortality tables will affect pension contributions and funded status going forward.”

The projected benefit obligation (PBO) increased $25 billion during August, bringing the Milliman 100 PFI liability value total to $1.757 trillion from $1.732 trillion at the end of July.

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August’s 0.85% investment return boosted the Milliman 100 PFI asset value to $1.459 trillion. In contrast, the monthly median expected investment return during 2016 was 0.57%.

Over the last 12 months, the cumulative asset return for pensions has been 7.53%, and the Milliman 100 PFI funded status deficit has improved by $126 billion. Discount rates also rose over the last 12 months, to 3.60% as of the end of August, from 3.32% for the same period last year. Although the funded ratio of the Milliman 100 companies has fallen back to 83% during August, it is still ahead of the 77% reported 12 months ago.

Assuming the Milliman 100 PFI companies deliver a 7.0% median asset return, and if the current discount rate of 3.60% was maintained during years 2017 and 2018, Milliman forecasts that the funded status of the surveyed plans would increase.

“This would result in a projected pension deficit of $284 billion (funded ratio of 83.8%) by the end of 2017, and a projected pension deficit of $238 billion (funded ratio of 86.4%) by the end of 2018,” said Milliman. For purposes of this forecast, Milliman has assumed 2017 aggregate contributions of $36 billion, and 2018 aggregate contributions of $39 billion.

It also said that if a rosier outlook is assumed, with rising interest rates reaching 3.80% by the end of 2017 and 4.40% by the end of 2018, and annual returns of 11%, then the funded ratio would climb to 87% by the end of 2017, and 100% by the end of 2018. However, under a pessimistic forecast with a 3.40% discount rate at the end of 2017, and 2.80% by the end of 2018, with 3.0% annual returns, the funded ratio would decline to 81% by the end of 2017, and 74% by the end of 2018.

Tags: Milliman, Milliman 100 Pension Funding Index, Pension