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Retirement Planning > Retirement Investing

SOA Effort Explores More Flexible Retirement Systems

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A new report from the Society of Actuaries looks at envisioning new retirement systems for the 21st century–systems that could meet the needs of baby boomers as well as all future retirement needs, without generational limitation.

The report, Building the Foundations for New Retirement Systems, is a compilation of insights from the first conference of “Retirement 20/20,” an initiative of SOA’s Pension Section Council. The conference was held in September 2006.

Retirement 20/20 is asking, “if we wipe the slate clean, what needs to change” in order to introduce that flexibility, says Emily Kessler, staff fellow-retirement system solutions for the SOA, Schaumburg, Ill., and author of the report.

For instance, people are living longer and working longer, and family structures are changing, Kessler notes. One problem is that existing retirement systems do not “self-adjust” to reflect such changes. The 20/20 conference found that systems need to be flexible in how and when benefits are paid, and to adjust as workers change, she writes in the report.

The retirement system would likely be more affordable if it did that, she tells NU.

The retirement industry needs to start a “different conversation,” she maintains. “We need to think about what we need to do” to address the changes. What is new is that retirement experts are recognizing this need, she says.

If the industry doesn’t take care of the boomers, that will hurt society for a long time, she predicts. “If we don’t achieve this goal now, we’ll pay for it later.”

The boomer demographic, especially the late boomer demographic, will benefit from such changes, Kessler predicts.

The early baby boomers (born 1946-1955) are actually much better off, financially speaking, than are late boomers (1956-1964), says Kessler.

The same can be said for pre-boomers (born before 1946), she says in an interview with NU. And this has implications for the retirement future, Kessler stresses.

The late-boomers, some mid-boomers, plus boomers who are in the lower income brackets will risk seeing their finances fall apart once they hit retirement, she explains.

As for the early boomers, they are better off financially because they had a lot of job opportunities when they entered adulthood, Kessler says. “They drove housing demand. Many were (and are) participants in defined benefit pension plans.” So, during the wealth accumulation stage of their life, they were generally better able to take advantage of growing employment and housing markets, she says.

By comparison, late boomers and low-income boomers face more challenges and a changing retirement system, she says. So do individuals in generation-X. For instance, more of them are participating in defined contribution plans, few participate in defined benefit plans, and many are affected by the global economy.

To date, retirement plan development has focused mostly on tweaking the current plans, Kessler notes. The developers would make incremental changes to existing products, such as DC and DB plans, she says. “But is that enough to meet what needs to be done, the overall social goal?”

The tweaks should help people who are retiring today, including the early boomers, she allows, but the late boomers and the Gen-Xers may well need new solutions, because they face a different retirement future.


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