JOSH COHEN MICHAEL FINKE MATT PERNA JEREMY STEMPIEN Managing Director & Head of Professor & Frank M. Engle Director, Principal, Portfolio Manager Institutional Defined Distinguished Chair in Institutional Defined & Strategist, Contribution, Economic Security, Contribution, Global Multi-Asset Solutions, PGIM The American College of PGIM QMA, a PGIM company Financial Services Confidential - Not for Further Distribution For Professional and Institutional Investor use only. Your capital is at risk and the value of investments can go down as well as up SPENDING IN RETIREMENT JULY 2020 1
INSTITUTIONAL RELATIONSHIP GROUP Read Now Source: PGIM. For Illustrative purposes only. 2
JOSH COHEN MICHAEL FINKE MATT PERNA JEREMY STEMPIEN Managing Director & Head of Professor & Frank M. Engle Director, Principal, Portfolio Manager Institutional Defined Distinguished Chair in Institutional Defined & Strategist, Contribution, Economic Security, Contribution, Global Multi-Asset Solutions, PGIM The American College of PGIM QMA, a PGIM company Financial Services Confidential - Not for Further Distribution For Professional and Institutional Investor use only. Your capital is at risk and the value of investments can go down as well as up SPENDING IN RETIREMENT JULY 2020 3
INSTITUTIONAL RELATIONSHIP GROUP Defined Contribution 3.0: A Focus on Outcomes DC Evolution Phase: 1.0 3.0 2.0 Do It Yourself • • Default driven design • Setting and measuring broader retirement investing objectives Plan Design Investment and plan design specifically around • supporting decumulation • Self-service Focus on accumulating Communicating in terms of projected retirement • • Participant Support & assets income Communication Tools and advice on how to support spend • down and income sustainability in retirement • Lots of choice • Streamlined menus • Income-focused glide path design • Retail focus • Multi-asset solutions to • Use of technology to provide more tailored support accumulation advice and solutions Solutions • Institutional investment strategies like liability- driven investing • Guaranteed income to hedge unique risks in retirement For Illustrative purposes only. 4
INSTITUTIONAL RELATIONSHIP GROUP What’s the Purpose of Retirement Investing Spending Investment in Retirement Today Tomorrow Image source: Shutterstock. For Illustrative purposes only. 5
INSTITUTIONAL RELATIONSHIP GROUP Spending in Retirement Image source: Shutterstock. For Illustrative purposes only. 6
INSTITUTIONAL RELATIONSHIP GROUP Retirement Income Liabilities Vary Greatly Retirement Income Replacement Rate by Pre-Retirement Income Level 98% 83% 75% 69% 68% 61% 60% 59% 56% 53% 49% 48% $30k - $40k - $50k - $60k - $70k - $80k - $90k - $100k - $110k - $120k - $130k - $140k - $40k $50k $60k $70k $80k $90k $100k $110k $120k $130k $140k $150k Source: University of Michigan Health and Retirement Study (HRS). After-tax spending in retirement as a percentage of pre-retirement gross income across the 2008-2016 HRS waves. 7
INSTITUTIONAL RELATIONSHIP GROUP What We Spend Right After Retirement Source: Finke & Guo, 2015. 8
INSTITUTIONAL RELATIONSHIP GROUP Understanding the Retirement Income Liability - Discretionary Food - Clothing “Wants” - Entertainment Income - Discretionary Transportation - Education - Gifts / Misc. - Fixed Food - Housing “Needs” - Fixed Transportation Income - Healthcare - Insurance Retirement Income Liability Source: PGIM, Bureau of Labor Statistics (BLS) Consumer Expenditure Surveys. For illustrative purposes only. 9
INSTITUTIONAL RELATIONSHIP GROUP Effects of Income Level on Needs & Wants Spending Needs Expenses by Income Level 72% 66% 66% 65% 63% 56% $15k - $30k - $40k - $50k - $70k - +$100k $30k $40k $50k $70k $100k Source: Bureau of Labor Statistics (BLS) Consumer Expenditure Surveys. Needs expenses in retirement as a percentage of total retirement spending by gross income. 10
INSTITUTIONAL RELATIONSHIP GROUP Participants Increasingly Delegate Investments Participants Using TDFs or Managed Accounts Self- Delegate Directed, Retirement 46% Savings, 54% Source: Blanchett, Finke, and Reuter, 2020. 11
INSTITUTIONAL RELATIONSHIP GROUP March 2020: Value of Delegation Changed Portfolio Allocation in March 2020 Self-Directed 17% Delegated Retirement 2% 0% 4% 8% 12% 16% 20% Source: Blanchett, Finke, and Reuter, 2020. 12
INSTITUTIONAL RELATIONSHIP GROUP March 2020: % Change in DC Stock Allocations Age <25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 >=70 0 -5 -10 -15 -20 % Change -25 -30 -35 -40 -45 -50 55-75% Stocks 75-90% Stocks >=90% Stocks Source: Blanchett, Finke, and Reuter, 2020. 13
INSTITUTIONAL RELATIONSHIP GROUP Financial Literacy and Confidence 100 90 80 70 Average Score 60 Financial Literacy 50 Confidence 40 30 20 10 0 60 65 70 75 80 85 Age Source: Finke, Howe, and Huston, 2013. 14
INSTITUTIONAL RELATIONSHIP GROUP In your retirement investments, how important is it to know how much income you’ll be able to safely spend each year? 80% 63% 60% 40% 23% 20% 13% 1% 0% 0% Very Somewhat Moderately Not Very Not at all Source: Finke, 2016. 15
INSTITUTIONAL RELATIONSHIP GROUP Addressing the Need for More Customization Age range when participant circumstances begin to vary. 100% % Potential Equity Exposure 0% B I J B I E B HJ B HE B GJ B GE B FJ B FE B J @ E @ J @ FE @ FJ @ GE @ GJ @ HE Years Until Retirement Source: PGIM. For illustrative purposely only. 16
INSTITUTIONAL RELATIONSHIP GROUP Investing With a Needs & Wants Liability Framework Liabilities Assets DC (Diversified Portfolio) “Wants” Income DC (LDI / Annuity Hedging Portfolio) DB / Other “Needs” Income Social Security Retirement Retirement Date Income Liability (e.g., age 65) Source: PGIM. For illustrative purposes only. 17
INSTITUTIONAL RELATIONSHIP GROUP Investing With a Needs & Wants Liability Framework Institutional Investments Guaranteed Full & Non- Lifecycle Guaranteed Design Solutions Professional Product Fiduciary- Management Modularity Friendly Solving for Simple to the Right Use and Risks Understand Participant Customization Source: PGIM. For illustrative purposes only. 18
Contact Us JOSH COHEN MICHAEL FINKE MATT PERNA JEREMY STEMPIEN Managing Director & Head of Professor & Frank M. Engle Director, Principal, Portfolio Manager Institutional Defined Distinguished Chair in Economic Institutional Defined & Strategist, Contribution, Security, Contribution, Global Multi-Asset Solutions, PGIM The American College of Financial PGIM QMA, a PGIM company Services michael.finke@theamericancollege.edu josh.cohen@pgim.com matthew.perna@pgim.com jeremy.stempien@qma.com 19
INSTITUTIONAL RELATIONSHIP GROUP THANK YOU! SPENDING IN RETIREMENT JULY 2020 20
Recommend
More recommend
