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The Status of

Retirement Today Madge Bush, AARP Advocacy Director

Presentation December 14th, 2009

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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

4 Pillars of Economic Security

Social Security

Continued Earnings

Pensions and

Individual Savings

Adequate &

Affordable Health

Insurance

Today’s Discussion

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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

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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

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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

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Americans Save Too Little

Ron Wilcox

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Americans Save Too Little

Ron Wilcox

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Why Should We Care?

> A lot of people will find themselves poor in retirement.> If we don’t 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

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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

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The Retirement Boom Every seven seconds,

another Baby Boomer turns 50.

By 2011, the first of this 78 million-person generation begins turning 65.

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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.

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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

What do we do?

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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.

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Creating Opportunity (cont’d)

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 worker’s or the employer’s 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 theiraccounts with them if they change jobs.

Employers receive a start-up tax credit to help offset the administrative costs.

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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.

Auto IRAs: Good for Employers

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Creating Opportunity (cont’d)

Builds on state’s experience running retirement plans for public employees.

Plan fees stay low, because states can achieve economics of scale and leverage existing public retirement system infrastructure.

State assumes no legal liability for the plan’s performance.

Clear distinction between these private sector accounts and the accounts for state employees.

State-Assisted Savings

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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

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II. Making Saving Easy

AARP supports auto escalation, which automaticallyincreases the amount saved over time.

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

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

AARP supports automatic saving features:

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VEVA (Virginia Employee Retirement Accounts)

is a Solution!

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III. Improving Understanding to Increase Saving

It’s 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 @ 6% interest, it

would equal $20,000 in 20 years.

Leave the money for 30 years, and it would grow to almost $43,000.

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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.

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Financial LiteracyAmericans 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

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> 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

What You Can Do:

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Sources of DATA

> Analysis of Proposals to Broaden Private Pension Coverage and Retirement Savings through State-K Programs—A 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