Creating A Life Plan Before It's Too Late

In case you missed the announcement, today is part of a seven day celebration of National Retirement Security Week. The event is sponsored by the National Association of Government Defined Contribution Administrators, Inc. ("NAGDCA") and stems from Congressional action to:

  • Apprise employees about the need to be retirement ready in terms of personal finances;
  • Educate individuals about various ways to save for retirement; and
  • Help employers encourage their employees to save more.

While true that it's essential to address issues such as expected lifespan, job mobility, the power of compounding and taking advantage of a company match, money is not the only end goal. One could have a substantial piggy bank but end up lonely or in search of something satisfying to do. According to "How to Retire Happy" by Stan Hinden (AARP Bulletin, September 2014), it is important to ask what comes next. Some persons end up spending more time in retirement than the number of years they worked. Kerry Close reports for Time Money that a "record high number of retirees" are unhappy. She cites an Employee Benefit Research Institute study that shows a big drop in "very" satisfied retirees from 60.5 percent in 2012 to 48.6 percent in 2016.

One suggestion is to create (or update) a life plan, even if you are far from the gold watch party. According to a blog post by consultant and writer Royale Scuderi, this document should summarize "where you are now in all the areas that matter to you, where you want to improve and what you'd like your life to look like in the future." Easier said than done, pondering the big picture can be challenging but enlightening as well. As someone who is updating her life plan right now, I find the effort worthwhile. Acknowledging that you cannot recapture time reinforces the concept that one should be reflective about the past, grateful for the present and excited about the future. As Anthony Hopkin's character said in Meet Joe Black, the years go by "in a blink."

For those who want to give it a go, check out the the narrative provided by life coach Michael Hyatt. Earlier this year, he co-wrote Living Forward: A Proven Plan to Stop Drifting and Get the Life You Want with Daniel Harkavy. An online search yields additional educational resources. (Note: This blogger has no relationship with Michael Hyatt.)

April is Financial Literacy Month

Every year, April brings spring showers and a celebration of Financial Literacy Month. Instead of balloons and party favors, the Council for Economic Education launched a video campaign of famous people who explain "what they've learned about the importance of financial literacy and saving." Given the dismal outlook of retirement readiness, any effort to get people thinking about putting money aside for the future is a good thing.

According to the 2016 Retirement Confidence Survey, roughly one of every five individuals expects to postpone retirement for monetary reasons. Insured Retirement Institute research suggests that "less than a quarter of baby boomers, 24 percent, are confident they will have enough savings to last throughout their retirement years."

The extent to which the recently released U.S. Department of Labor Fiduciary Rule will impact savings patterns is unknown at this time. Certainly the goal is to empower individuals to plan ahead.

Pension Risk Governance Blog Still Going Strong After Nine Years

Nine years today marked the debut of Since then, I am proud to say that traffic has steadily grown, with continued feedback and suggestions about all sorts of topics. I am deeply grateful to visitors to this independent website for their time and encouragement. While the specific feedback tends to vary by issue or job function, a central theme is clear. Ongoing education about topics such as due diligence, fees, risk management, asset allocation, hedge funds, liquidity and valuation is both needed and desired. In 2015, this award-winning blog will continue its focus on providing objective and helpful information about important subjects that challenge investment stewards and their advisors, attorneys and regulators who oversee the management of more than $30 trillion.

As I point out in "Financial Expert Susan Mangiero Celebrates Ninth Year as Lead Contributor to Pension Risk Governance Blog" (Business Wire, March 25, 2015), "There is never a shortage of subjects to discuss, thanks to ongoing suggestions and contributions from readers and the significant realities of changing demographics, market volatility and new accounting rules."

To date, there are over 900 published analyses, research updates and guest interviews that can be readily accessed by category and keyword. Simply click on the Archives section of For a complimentary subscription to this blog, as posts are published, click here to sign up. Click here to read our Privacy Policy. If you are interested in contributing an educational essay or letting us know about a relevant news item or rule change, please email

Until the next blog post, thank you for your interest!

Report Card For Teacher Pension Plans

According to "Doing the Math on Teacher Pensions: How to Protect Teachers and Taxpayers," just published by the National Council on Teacher Quality, "state teacher pension systems had a total of $499 billion in unfunded liabilities" in 2014, up by $100 billion since its 2012 study. On a gloomy note, they add that "the debt costs spread out across the K-12 student population amount to more than $10,000 per student and growing." This can only be seen as bad news for beleaguered municipalities with tight budgets.

Concurrent with funding pressures, researchers explain that numerous state sponsors "are also making it harder for teachers to receive benefits." Sprinkled throughout the report is a reference to fairness (or lack thereof) and limited flexibility, with occasional references to the advantages of offering a defined contribution plan to eligible educators. Few defined benefit plans were identified as being sufficiently portable or moderate in terms of what teachers were asked to contribute. Another cited flaw was the factoring of years of service instead of age only as a determinant of when one could retire. Long vesting periods and restrictions as to when employer contributions could be withdrawn by employees are other weak spots. The inability for teachers to purchase service credits for "prior teaching or approved leave" led to poor rankings for some states.

With a pension grade of A, Alaska tops the list. Mississippi lags with a pension grade of F. Too many states for comfort had a C, C-, D+ or D assessment. Fourth from the bottom is Kentucky with a grade of D-, accounting perhaps for its headlines about legislative reform. In "Ky. lawmakers demand reforms to teacher pension plan" (Louisville Courier-Journal, January 1, 2015 ) reporter Mike Wynn tallies unfunded liabilities at $14 billion, "on top of the $17 billion funding gap at Kentucky Retirement Systems." It is no surprise that the Bluegrass State is under pressure to implement change. In addition, a putative class action suit has been filed by a local history teacher against the Kentucky Teachers' Retirement System, "alleging their administrators have been negligent in protecting teachers' pensions from chronic underfunding by the state and bad investments..."

With low scores, large financial gaps and investment risk-taking on the rise for more than a few state teacher retirement plans, somebody may have to stay after school and write "I will change" one hundred times.

Longevity Trends and Pension Costs

When it comes to estimating defined benefit ("DB") plan costs, it is critical to use inputs and assumptions that make sense. Longevity is one such important factor that demands attention. Getting good answers to questions about life span differences among age, income and health cohorts is necessary for decision-makers. The assessment of how to redesign a plan, transfer risk and/or modify investment strategy depends on knowing what variables determine the size of the liability.

Studies such as the one just released by the National Association of Pension Funds ("NAPF") and Club Vita (a Hymans Robertson Company) can be helpful to the extent that they shed light about how long participant groups are expected to live. In a November 27, 2014 joint announcement, its "unique" research is described as likely to result in companies having to report higher pension liabilities. Based on an assessment of data about 2.5 million pensioners and one million deaths, authors conclude that "the pace of longevity increases varies significantly within DB schemes and for different groups of DB pension scheme members." One inference is that the life span gap between men and women in the "hard pressed" economic category versus those who are "comfortable" is narrowing. A second finding is that a typical defined benefit plan liability is likely to rise by one percent.

As the researchers correctly point out, access to granular details about the sensitivity of the cost-demographic lever can be utilized by DB plan trustees when deciding if and how to restructure via a buy-out, liability-driven investing strategy or something else. Click to read "The NAPF Longevity Model" (November 2014).

Labor Force Shrinks - Hurts Economy

Labor Day always marks an assessment of where things stand with the state of employment (or unemployment as the case may be). This year is no different except that the news continues to get worse with respect to how many people are contributing to the country's bottom line.

According to MarketWatch contributor Irwin Kellner, the unemployment rate is a poor substitute for knowing whether people are ready, able and willing to work. In "Labor pains - don't count on jobless rate" (September 3, 2013), the point is made that the participation rate is at an all-time low. Excluding military personnel, retired persons and people in jail, fewer adults than ever before in the history of the United States are pursuing work. One reason may be that schools are not preparing young people to assume jobs that require a certain level of skills. Another reason is that being on the dole is a superior economic proposition for some individuals. Yet another factor is that long-term unemployed persons are too discouraged to keep going.

Indeed, I wonder if there is a productivity tipping point, beyond which a person says "never mind" to gainful employment. Certainly people with whom I have spoken talk about the need to work many more years beyond a traditional retirement age. However, they are quick to add that they enjoy what they do and sympathize with those persons who have jobs they loathe or are hard to do after a certain age. Some people simply believe that going fishing on other people's dime, as a ward of the state, is a rational response to current incentives.

The numbers are gigantic and that should put fear in the hearts of those who are pulling the economic wagon. According to labor expert Heidi Shierholz, "More than half of all missing workers - 53.7 percent - are 'prime age' workers, age 25-54. Refer to "The missing workers: how many are there and who are they?" (Economic Policy Institute website, April 30, 2013). The Bureau of Labor Statistics, part of the U.S. Department of Labor, estimated in July 2013 that there are 11.5 million unemployed persons, of which 4.2 million individuals fall into the long-term unemployed bucket since they have been out of work for 27 weeks or longer. Click to review statistics that comprise "The Employment Situation - July 2013."

The combination of no job and an anemic retirement plan, if one exists at all, are harbingers of doom for taxpayers and for plan sponsors that are under increasing pressure to help their employees. Mark Gongloff, the author of "401(k) Plans Are Making Wealth Inequality Even Worse: Study" (Huffington Post, September 3, 2013) describes a recent study that has the wealthiest Americans with "100 times the retirement savings of the poorest Americans, who have, basically no savings."

My predictions are these. Even if you are a rugged individualist who keeps a tidy financial house, you will be paying for the economic misfortunes of others. Taxes are destined to rise, benefits may fall and you will likely have to work for a long time to pay for this country's dependents. Retirement plan trustees, whether corporate or municipal, will be under increased pressure to make sure that dollars are available to pay participants, regardless of plan design. In lockstep with expected changes in fiduciary conduct, ERISA and public investment stewards could face more enforcement, scrutiny and litigation that asks what they are doing and how.

Booming Seniors Market and Making Money

I have been thinking a lot about aging of late. For one thing, I have an elderly father in a nursing home. Second, several of my mentors are retiring. Third, I have observed a significant uptrend in snappy red convertible automobiles being driven by people with gray hair. Fourth, anyone involved in the pension industry is acutely aware of the changing demographics around the world and the economic impact for company sponsors and participants, respectively. Whether focused on an investment strategy for a defined benefit plan or selecting choices for a defined contribution scheme such as a 401(k) plan or both, fiduciaries are understandably focused on how longer life spans are likely to alter the money landscape.

According to the Administration on Aging, part of the U.S. Department of Health & Human Services, the numbers tell an important story.

  • Approximately one person out of eight Americans is characterized as "older."
  • Those persons over 65 years of age numbered 41.4 million in 2011 and are expected to grow to 79.7 million in 2040.
  • Persons aged 85 years or more are expected to increase from 5.7 million in 2011 to 14.1 million in 2040.
  • Approximately 3.6 million elderly persons had means that put them in the "below poverty level" category in 2011.
  • The primary source of income, as reported by 86% of "older persons" in 2010, is Social Security. Income from assets is reported as a source of income by 52% of older persons. Only 27% report private pensions as a source of income. An even smaller number - 15% - cite government employee pensions as a source of income.

Other statistics can be found in "A Profile of Older Americans: 2012."

Whether you see this wave of senior citizens as welcome news or cause for worry about how programs will be financed, demographic patterns are a reality. As a result, performance-hungry investors are searching for winners.

One possibility is non-medical care companies that offer services such as grocery shopping and driving seniors to doctor appointments. Karen Axelton, Chief Content Officer for GrowBiz Media and former executive editor of Entrepreneur Magazine, describes the "big opportunity" for franchise companies to play a vital role for those persons who can afford help and want to live at home. She adds that senior relocation is another revenue generation opportunity, citing a large jump in companies that have joined the National Association of Senior Move Managers. Adult day care is yet another suggestion. See "Franchisees Profit from Growing Senior-Care Market."

Rizwan Koita writes that health care spending in the United States continues to grow, from $2.4 trillion or 17 percent of GDP in 2008 with an expectation of $4.4 trillion in spending or 20 percent of GDP by 2018. A CNBC commentator and CEO of health care analytics company Citius Tech, Koita explains that venture capital and private equity professionals are funding businesses in what is seen as a fast expanding health care technology industry. "Given the high level of inefficiency in the health care ecosystem today, there is significant potential to reduce costs while still protecting the financial interest of all stakeholders...[t] is tremendous opportunity in using technology to enhance health care delivery for the aging population and reduce costs." See "Aging Populations Mean Big Opportunities in Health Care IT," CNBC Commentary, November 1, 2012.

"The Prophet of the Coming Aging Boom" by Forbes reporter Susan Adams (October 19, 2011) credits Ken Dychtwald as being upbeat about "a potential explosion of products and services, from new dating websites to longevity insurance to new kinds of food" that cater to the preferences and needs of mature consumers. This CEO of the specialized research and consulting firm, Age Wave, is excited about the chance to innovate and "make serious money" from the gray hair movement. His recent presentation entitled "Transforming Retirement" is worth the 43 minutes it takes to watch on You Tube.

In the April 2013 issue of "Health Capital Topics," senior industry guru Bob Cimasi describes the massive overhaul underway for numerous stakeholders as the result of new regulations. A strong case can be made that business opportunities abound to assist consumers, employers, states and healthcare providers, respectively, as the implementation of the Patient Protection and Affordable Care Act ("PPACA") proceeds.

Interested readers can visit the vast library of articles provided by Health Capital Consultants. "Global Population Ageing: Peril or Promise?" (World Economic Forum, 2012) includes numerous statistical tables and discussions about the economic implications of changing demographics. The American Society on Aging website may likewise be of interest.

Disclaimer: This post is not intended to provide investment, financial, accounting or legal advice. It is left to the reader to perform adequate due diligence about any investment being considered or in place already. Furthermore, this blog post does not present an exhaustive list of the investment implications being discussed as the result of a global aging population.

Aging Around the World: Economic and Political Realities

In "Shock of Gray: The Aging of the World's Population and How it Pits Young Against Old, Child Against Parent, Worker Against Boss, Company Against Rival, and Nation Against Nation," Ted C. Fishman states that "when a society does not have enough young people, it is forced to change, often in surprising ways." He explains that in forty years, the number of centenarians will exceed three million persons versus 182,000 persons who were older than 100 years in 2000. Moreover, family size is shrinking in many countries at the same time that relatives are geographically dispersed.

Drawing on trends in countries that include China, Japan, Spain and the United States, this best-selling author suggests that businesses and individuals will confront unprecedented challenges as relates to both economics and politics. For one thing, numerous companies jettison older employees (perhaps by offering early retirement) at the same time that having them work more years can be a societal plus (versus having younger workers pay higher taxes to fund programs for a larger and fast-growing cohort of seniors). Second, aging and globalization go hand in hand with lower cost immigrant workers representing a bigger proportion of senior caregivers. Third, if unemployment rates continue to plague youth around the world, economic pressures will disproportionately hit those who are working.

This blogger has long commented on the radically changing demographics in the United States and elsewhere. As with any crisis, innovators tend to rise to the challenge of providing solutions for profit. Already, entire industries such as travel, health care and financial services are segmenting targets by age. However, not surprisingly, those with means have the greatest appeal as potential customers. That means that those less endowed could end up fighting for a smaller sliver of available public goods, especially as nations decide how best to deal with mounting national debts by scaling back on safety net outlays.

Fishman offers that age may be less a chronological phenomenon and more a situation where one should be better categorized by his or her dependency on others. With nearly 80 million people turning 65 this year in the USA, understanding the economic and sociopolitical dimensions of aging is paramount.

Click to view a 9:05 minute video entitled "U.S. Faces 'Explosion of Senior Citizens': Will Baby Boomers Strain Economy?" (January 3, 2011). In this interview by PBS News Hour anchor Judy Woodruff, Dr. Nicholas Eberstadt (with the American Enterprise Institute) and Ted Fishman talk about runaway entitlement spending such as Medicare that must be addressed. One stated solution to the aging crisis is for people to work longer, something that is plausible, especially for those with education who can contribute to a service sector with ease. Staying healthy and saving as much as possible are two other solutions put forth by the interviewees.

"Death" Derivatives and Longevity Related Pension Risks

As seniors continue to live hopefully fulfilling lives, plan sponsors grapple with how to best manage the costs. The realities of longer life spans for participants is creating all sorts of innovation on Wall Street, including what Bloomberg journalists recently described as "death derivatives."

In a May 16, 2011 article, Oliver Suess, Carolyn Bandel and Kevin Crowley describe products that could encourage defined benefit plan executives to "outsource" by transferring risks to longevity traders or entering into a financial engineering transaction in order to receive a regular cash flow that mirrors their respective ongoing obligations to retirees. What happens next, depending on how capital market participants respond to a few test cases, could mean the growth of a $23 trillion market in longevity bonds and related derivative instruments.

As with any financial engineering endeavor, education will be paramount in terms of both plan sponsors and securitized pension obligation buyers understanding underlying assumptions and risk-return attributes.

Click to read "Death Derivatives Emerge From Pension Risks of Living Too Long."

Unemployment at the Movies

If you haven't yet seen "The Company Men" with Ben Affleck, Tommy Lee Jones, Chris Cooper and Kevin Costner and don't need a lot of laughs, it's a worthwhile flick about the U.S. economic problems of late. The plot centers on a successful sales executive who gets the boot from a Massachusetts conglomerate that started out as a manufacturer of ships. A wholesale layoff of otherwise talented professionals still leaves the company exposed to a hostile takeover so another round or two ensues, with Affleck's boss ultimately getting the pink slip from his lover, played by a glamourous Maria Bello. (Hey, it's the Hollywood version of Corporate America.)

Similar to "Up In The Air" with George Clooney, this film's message seems to be that management is bad, labor is good and that family is what really counts. While I wholeheartedly endorse the message about counting one's blessings in the form of loved ones, friends and colleagues, I'm agnostic about the general "we versus them" theme and prefer to consider one company at a time.

If we've learned anything from the past decade, it's that production is increasingly mobile across borders. Beyond that, C-level leaders in the United States have a legal duty to their shareholders to create wealth (which is not necessarily the same thing as boosting the bottom line but that's a topic for another day). While I am not alone in opining that well-run companies recognize the importance of human capital (employees, clients, vendors) and that is why they can generate healthy returns for their investors, it is also important that individuals retool as often as is necessary to remain competitive.

In 2002, Daniel H. Pink extolled the virtues of independence in his best selling book entitled Free Agent Nation: The Future of Working for Yourself. The numbers speak for themselves with a continued increase in freelancers, temps, affiliated parties and smaller consulting networks that work from home or close by, create their own revenue path and are happy campers. However, for those who desire more stability and structure by working for larger employers, the concept of free agent is still worth pondering. Specifically, if your industry is changing around you, maybe it's time to take stock of how you stack up against others. My dad, now a retired engineer, went through this process about fifteen years ago when he took it upon himself to study computer assisted design at night since younger hires were facile with the newer technology tools and he was not.

As a young banker, I had a boss who urged me to think of myself as a box of raisin bran. Every year, he told me to figure out how to be "new and improved." I would complete a skills inventory checklist and then commit to improve as needed.

"The Company Men" was an enjoyable cinematic outing and a great reminder that dues paying never stops. Learning and career development is a lifetime endeavor, especially now. With longer lifespans and, for millions of people, the need and/or desire to work beyond 65 years of age, it is critical to stay current with requisite skills and experience.

Old Age Can Be a Bonus With a Price Tag

Enjoy this interview about longevity and pension risk management with Dr. David Blake, Director of the Pensions Institute. Professor Blake explains why understanding life expectancy trends across age, gender and socioeconomic groupings is so critical. He comments on new valuation rules that relate to financial statement transparency and share prices of plan sponsors. He differentiates between pension buy outs from pension buy ins and offers reasons why longevity swaps can be beneficial.

Click here to read "Longevity and Pension Risk Management," an interview with Professor David Blake, May 2010.

For other articles about longevity and pension risk management, visit for a complimentary subscription to best practices website,

Not 21 But Lots of Great Opportunities Ahead

A man is not old until his regrets take the place of dreams.
- - - - John Barrymore, "Good Night, Sweet Prince" 1943

If Betty White can rock Saturday Night Live to its highest ratings at the age of 88 and Sunset Daze is media gold for the senior reality television set, there is hope for anyone who wants to stay in the game rather than "retire" from the mainstream. In "Famous folks launched careers after 50" by CNN's Ethan Trex (May 16, 2010), more than a few individuals have realized great commercial success as seniors, including Colonel Sanders (of Kentucky Chicken fame), President Ronald Reagan and Takichiro Mori (twice reported by Forbe's as the world's richest man "with a net worth of $13 billion").

Good news is everywhere for the gray haired set if you accept current research about preservation and growth. In "Creativity and successful brain aging: Going with the flow" by Susan Krauss Whitbourne, PhD (March 23, 2010), having friends, enjoying leisure activities such as bridge or dancing and developing a "flexible mental attitude" are three hallmarks of a productive and enjoyable "later life."

At a time when the world is getting older, employers are challenged with managing the costs of providing post-employment retirement benefits as well as having skilled and experienced workers in place.

In a summary slide show, Business Insider excerpts from the 2009 EU Ageing Report to paint a sober picture of how age impacts gross domestic product ("GDP"), assuming that retired persons truly exit the economy and are given no opportunity to continue working in some fashion. (Keep in mind that official statistics do not fully capture actual employment.)

Country Pension Cost compared to GPD in 2007 Estimated Pension Cost compared to GPD in 2035 Estimated Change in Working Age Population by 2020
Netherlands 6.6% 10% -4.3%
Luxembourg 8.7% 17% -1.1%
Denmark 9.1% 11% -4.3%
Bulgaria 8.3% 9% -5.6%
Czech Republic 7.8% 7.6% -8.3%
Belgium 10% 14% -3.5%
Poland 12% 9.3% -5.7%
Hungary 11% 12% -5.0%
Italy 14% 15% -3.0%
Sweden 9.5% 9.4% -6.0%
Malta 7.2% 9.7% -7.1%
Greece 12% 19% -3.9%
France 13% 14% -5.5%
Finland 10% 14% -8.5%
Slovenia 9.9% 15% -6.6%


Things are not too much better in the United States with respect to financial solvency and unfunded retirement benefits. According to "The Market Value of Public-Sector Pension Deficits" by Andrew G. Biggs (Retirement Policy Outlook, American Enterprise Institute for Public Policy Research, April 2010), "public-sector pension plans have only a 16 percent probability of being able to cover accrued benefit liabilities with current assets."

The ramifications are huge in so many ways. Increased taxes, rescinded benefits or both are vote killers so you have to know that THE demographic time bomb is going to become political radiation in short order.

Until then, if you are healthy and able to continue working or are otherwise financially independent, enjoy the good life. Way to go!

Wives and the Checkbook


According to "New Economics of Marriage: The Rise of Wives" by Pew Research Center analysts Richard Fry and D'Vera Cohn (January 19, 2010), women are besting men "in education and earnings growth." Their statistics are noteworthy for countless reasons.

  • An observation that "marriage rates have declined for all adults since 1970 and gone down most sharply for the least educated men and women" suggests that those with degrees (and therefore statistically likely to earn more over their lifetime) are walking down the aisle.
  • For Americans between 30 to 44 years of age, there are more females than males with college degrees.
  • Three out of ten unmarried women with college degrees realize greater economic gains versus only fifteen percent of unmarried male who had gone on for higher education.
  • Household incomes grew for three out of ten married men with only a high school diploma. Less than two out of ten unmarried males with no college under their belts saw their checkbooks get bigger.
  • In both 1970 and 2007, 53 percent of survey-takers report that husbands and wives had the same level of education. In 2007, 28 percent of households declared that wives had more education versus 20% in 1970.
  • When the wife earns more money, only 21 percent of the respondent households claim the husband as the primary financial decision-maker versus 46% of situations where the Missus gets to choose. When the husband earns more, the number climbs to 35% in terms of final say on investments and purchases. In 36% of homes, the female better half decides.

In "She Works, They Are Happy" (New York Times, January 24, 2010), Tara Parker-Pope offers that divorce rates have dropped from 23 per 1,000 couples thirty years ago to 17 today, in part due to the ability for women to earn a living without help from a spouse. The result, she avers, is a change in how much time men spend on domestic chores and earning the bacon. While not yet an equal split, today's "to do list" at home is a far cry from the plaudits of Arlie Hochschild. In her still popular book, The Second Shift, this University of California - Berkeley sociology professor laments the imbalance between working men and women when it came to childcare and housework.

Demographic research about men, women and money always provokes thought and is great fodder for cocktail party chats. That's not all. The ramifications for individual financial planning, retirement plan policy-making and industry-wide sales and marketing efforts are immense. Women tend to live longer which necessitates a large enough piggy bank to pay bills over a longer period of time. Then there are all sorts of studies about how lifetime decisions are influenced by gender, age, education and income. Marketers cannot ignore the fact that their pitches must encompass the "who" and "how" of sales for IRA, mutual fund, annuities and insurance.

As the female earnings landscape is altered, office dynamics are not immune to change. In The Male Factor: The Unwritten Rules, Misperceptions, and Secret Beliefs of Men in the Workplace (December 2009), author Shaunti Feldhahn describes the results of a large-scale survey of men to better understand how they judge the opposite sex in a business environment. Not surprising perhaps, she finds that emotions and long-winded discussions (not getting to the point) are looked upon poorly by respondents. This begs the question - Will women change by being more like their male counterparts or will men learn to go with the flow and willingly accept communication differences? Will it depend on whether the boss wears a skirt or gets the coffee instead? 

As always, your opinions count. Email or add a comment to this post.

Editor's Notes:

Reader's Comments about Demographics

Mr. Mark Steyn, author of the popular paperback book, America Alone, responds to the recent post about changing demographics. Read Mark's comments:

 << Sue, the problem isn't rapid aging, it is a rapid decline in fertility. Before the "smart" ideas of pensions (Bismarck, Germany, 1870) and Social Security (FDR), people's "pensions" were productive children. When the government tried to become the safety net, the incentive to build a flexible, productive, human pension withered. Now we try to shuffle financial assets around to plug the hole, when really what we need is more human ingenuity. So we're all in this together, against the government's unfulfilled and unfulfill-able promises that it will take care of us. >>

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Mr. Bob Mitchell echoes a similar sentiment that government largesse is unsustainable. Here is what he writes:

<< Full credit to Credence Clearwater Revival – “How much should we give? They only answer more! ‘more!’”

  • There is no “fair amount” of minimum benefit that we need to provide, beyond possibly food to survive.
  • Whatever level you provide, you are too stingy for those who want more. So they will keep pushing.
  • People don’t have a right to live in a particular area that they cannot afford.
  • People don’t have a right to high paying jobs nor pensions.
  • People don’t have a right to unlimited free health care.
  • Some things have to be earned.
  • US standards of poverty exceed the average income of much of the world population.
  • You are on your own But if you work it right, you can join a group (lobbying, union, church, insurance plan, fraternity, etc.,) where someone will look out for you in exchange for your involvement. But don’t expect it to come for no cost.

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Editor's Notes: Click to read the original post entitled "World Economic Forum Report - Demographic Gaia" (October 2, 2008). Click to access the lyrics and music to "Fortunate Son" by Credence Clearwater Revival.

If you concur or have a different point of view, drop us a line.

World Economic Forum Report - Demographic Gaia

According to Wikipedia, the Gaia Hypothesis refers to an ecology that inextricably ties together elements of Earth and the biosphere. With respect to world population trends, the World Economic Forum embraces the notion that "We Are in This Together" as one possible scenario. Other scenarios put forth include "The Winners and the Rest" and "You Are On Your Own."

 In its new report entitled "The Future of Pensions and Healthcare in a Rapidly Ageing World - Scenarios to 2030," authors cite UN projections that, by 2050, "one-third of the populations in developed countries and one-fifth of those in developing countries will be aged 60 or older." Authors Bernd Jan Sikken, Nicholas Davis, Chiemi Hayashi and Heli Olkkonen center on the likely outcomes associated with a radical increase in retirees. Why is this important? As more people leave the workforce, fewer wage-earners remain. This in turn means that fewer dollars (Euros, yen, etc) are deposited into the employee benefits pot to fund promises made to others.  

This blog has oft-commented on the potentially dire consequences of "out of control" obligations.  World Economic Forum researchers offer that population shifts will no doubt change the political and economic landscape in many countries. Their list of challenges includes, but is not limited to:

  • "Growing expectations that the private sector will come to the rescue"
  • Financial illiteracy on the part of individuals
  • Less than robust private-pension and health insurance mechanisms
  • Mounting pressures on "pay as you go" public safety net programs
  • Waning support from younger family members to care for elders
  • Shortage of skilled healthcare workers
  • No safety net programs for some 80% of those who live in less-developed countries.

The report is chock full of graphs and statistics and includes a comprehensive bibliography. Case studies about China and Italy are worthwhile as their problems mirror those of other countries.

I personally am a believer in the "together" theory, no matter how much we save as individuals and irregardless of employer largesse (for whom that applies).

As we've seen in the last few weeks, global capital markets are kissing cousins. Someone sneezes in one country and we all get a cold. In a similar sense, increasing numbers of impoverished persons likely affect us all in the form of (a) increased taxes on working individuals (b) drag on economic growth as monies are diverted from the business sector to support government programs and the (c) human element of not wanting to see others suffer because they cannot afford everyday basics.

Email your thoughts. Do you think we are in this together as relates to a benefits crisis?

Chinese New Year Ushers in Pension Reform

February 18, 2007 marks the Chinese New Year (the Year of the Boar). Also known as the Spring Festival or Lunar New Year, it is the "most important of the traditional Chinese holidays." Interestingly, Chinese New Year's Eve is known as the eve of change and indeed, China is on the verge of significant change.

According to a new study, co-authored by Reuters and KMPG, the demographics are compelling. "By 2050 the number of people aged 60 or over is expected to rise to more than 430 million, or 31 percent of the population, from just 147.8 million, or 11 percent today. This would put it well above the projected world average. More worryingly, the percentage of China’s population that is working is expected to peak in 2010, with the ratio of workers to retirees declining from six to one in 2000 to two to one by 2040." Click here for a copy of the study.

"The heavenly mandate: Winning a piece of China’s pensions market" describes a 401(k) look-alike known as enterprise annuities. Fixed fees and a local investment requirement are two notable features. Asset allocation constraints are another. Equity investments are limited to no more than 30 percent of assets under management, 20 percent in money market instruments, and up to one half to be invested in fixed-income securities "but at least 20 percent must be kept in government bonds."

Asset allocation is touted by many experts as THE most important of all investment decisions, leading one to ponder. Will an arguably "conservative" mix require yet additional change? People can't pay bills with rates of returns and depend instead on having sufficient cash on hand. What happens if (when) people come up short?

From the "glass is half full" camp, reform comes none too soon. As an anonymous Chinese sage suggests: "Do not fear going forward slowly; fear only to stand still."

Get Your Hands Off My Retirement Piggybank

Some things never change. On November 27, 1994, I wrote an op-ed piece for a local newspaper entitled "A prescription for Social Security" in which I warned of the entitlement mentality and the crushing debt load soon to be foisted upon young people everywhere. According to the editor, my suggestions for funding reform were not well-received, as evidenced by a flood of letters with the same message. "Keep your hands off my federal piggybank" and let someone else pay the price. (Like many others, I am an advocate of phased-in privatization for those who prefer to save on their own.)

Recognition of big problems ahead is certainly not unique to me. In his 1993 book, Generational Accounting: Knowing Who Pays, and When, for What We Spend, Dr. Laurence J. Kotlikoff warns of the great divide between the young and old. In their 2005 book, The Coming Generational Storm: What You Need to Know about America's Economic Future, Kotlikoff and co-author Scott Burns tell a grim tale of what has been chronicled many times before. A disproportionate number of persons are retiring from the work force, leaving those who remain to bear the staggering burden of a "pay as you go" system in the form of Social Security and Medicare.

Published last May, the 2006 Social Security Trustees Report states: "Over the 75-year period, the Trust Funds require additional revenue equivalent to $4.6 trillion in today's dollars to pay all scheduled benefits. This unfunded obligation is $600 billion higher than the amount estimated last year."

New York Times reporter Steven R. Weisman writes that Federal Reserve chairman Ben S. Bernanke is worried too, asserting that "Recent positive trends on the budget were a 'calm before the storm,' to be undone by huge deficits in federal entitlement programs. In "Fed Chief Warns That Entitlement Growth Could Harm Economy" (January 19, 2007), Weisman describes Senate testimony that sounds downright gloomy. "The longer we wait, the more severe, the more draconian, the more difficult the adjustment is going to be."

Unfortunately, as we know too well, attempts at entitlement reform are political folly and so the problem festers with little hope of short-term remedy

There are plausible solutions (hard ones but they do exist) IF only people would give up the ghost of an actual retirement piggybank in Washington, emblazoned with their names. In this case, Virginia - there is no Santa Claus.

Sorry kiddo!

Gray Power - Economic Implications

Credit illustrator Mike Dowdall for this delightful figurine. Now Art Director for Westland Giftware, after stints with Dakin, Portal, Hallmark and Bradford Exchange, Dowdall has created an entire line around the idea that "old is happening." (Click here to see more of his work.) Seeing a selection of this new product line in a local gift shop, I enjoyed a few chuckles but that's not all. It's yet another indicator that we are in for a radical change with respect to all things demographic. After all, no company is willing to commit funds unless they anticipate commercial success with lots of "geezers who get it."

Consider the following facts reported in "The Profile of Older Americans - 2005," published by the U.S. federal government. (Click here for a copy of the report.)

<< The older population (65+) numbered 36.3 million in 2004, an increase of 3.1 million or 9.3% since 1994. The number of Americans aged 45-64 - who will reach 65 over the next two decades - increased by 39% during this decade. About one in every eight, or 12.4 percent, of the population is an older American. Persons reaching age 65 have an average life expectancy of an additional 18.5 years (19.8 years for females and 16.8 years for males). Older women outnumber older men at 21.1 million. >>

This seismic shift in population make-up has the potential to impact every aspect of the U.S. labor landscape, not to mention the economic well-being of Corporate America. New York Times reporter Elizabeth Olson discusses the increased number of gray-friendly job boards. In "Some Web Job Sites Put Out 'Gray Hair Welcome' Signs," she writes: "Of the estimated 76 million baby boomers reaching retirement in coming years, some will start businesses. But the majority who continue to work will seek the familiarity and security of a regular paycheck."

At roughly twenty-five percent of total U.S. population, workers over 55 years could exert some serious bargaining power. Companies in desperate need of skilled workers will likely rethink their HR policies, including benefits that appeal to the "seasoned" set. That's on top of the oft-discussed cost of funding benefits for individuals whose lifespans are outpacing that of the trademarked Energizer Bunny.

Parenthetically, this pattern is not unique to the U.S. and arguaby more pronounced in countries such as Italy and Japan. Former U.S. Census Bureau Director Martha Farnsworth Riche describes "expensive housing, inflexible work practices, and persistence of traditional gender roles" as reasons for a reduction in new births, making seniors a large cohort in both an absolute and relative sense. (See "Population Aging: National Differences Make a Difference" - January 2004.)

Email us if you'd like some help in quantifying the relationship between demographics and your company's bottom line.

Retirement for Three Hundred Million People

According to the Census Bureau, U.S. population now exceeds three hundred million people. In contrast, the headcount was roughly two hundred million in 1968.

Additional numbers are noteworthy. With one birth every seven seconds, a death every thirteen seconds and one net international migration occurring every thirty-one seconds, it's easy to see that population will continue to grow.

Shades of Thomas Malthus, the English economist who warned that more mouths would deplete the available food supply, or an opportunity for innovation due to additional brainpower?

It likely depends on whether you see the glass as half full or half empty. However, one thing is clear. The population is graying at a rapid rate and there is real concern about the economic well-being of seniors who exit the workforce and younger persons who will be called upon to support them.

According to William Poole, president of the Federal Reserve Bank of St. Louis, "Changing demographics make it impossible both to maintain that traditional retirement age, with the level of benefits defined in current law, and to maintain the current level of taxation on the working population to support the retirement system." Global Action on Aging provides a vast collection of country reports about pensions. The message is the same sobering sentiment. Fewer and fewer people are going to have sufficient funds for their later years.

News from the federal front is equally grim. In "Status of the Social Security and Medicare Programs, A Summary of the 2006 Annual Reports", the Social Security and Medicare Boards of Trustees report that "The fundamentals of the financial status of Social Security and Medicare remain problematic under the intermediate economic and demographic assumptions. Social Security's current annual surpluses of tax income over expenditures will soon begin to decline, and will be followed by deficits that begin to grow rapidly toward the end of the next decade as the baby-boom generation retires."

My friends and I have this discussion often. Our conclusions?

1. We will work for a long time, perhaps well beyond the "typical" retirement age.

2. An increasing number of people will move into poverty as national benefits are cut, taxes are raised and private pensions are reduced or terminated altogether.

3. Taxpayers will struggle to fund troubled municipal plans while trying to save for themselves.

4. Fewer companies will offer benefits to new employees, forcing a lifestyle change that requires diminished spending, increased use of debt or both.

5. Health care problems will soon dwarf the pension crisis.

6. There is a perverse incentive for politicians to ignore making unpopular changes that might help in the long-run but hurt voters now. (Besides which, when is the last time a legislator had to worry about his or her retirement account?)

7. Individuals must get smarter and better about taking responsibility for their financial well-being.

8. Effective financial education is paramount.

9. Many individuals favor immediate consumption in lieu of systematic saving.

10. No particular individual or organization seems to "own" the issue.

You get the picture. It's a veritable challenge to be upbeat about what is fast becoming a global retirement crisis.

Is there a sunny side?

Yes but only if one is receptive to making changes. There will be winners and clever investors who identify them early on will do well. Some industries are already showing continued robust growth as our population ages in both absolute and relative terms. Health care is an example. Some see the forced move towards economic individualism as a return to the "get up and go" attitude of our forefathers. (Self-employed persons are already familiar with paying for their own benefits.)

According to an ancient Chinese proverb, "Many grains of sand piled up will make a pagoda."

It's time to get started on a serious savings plan.

Freezing Pensions: Brrr!

Talking about defined benefit plans is a little like listening to the Beatles.

You say yes, I say no.
You say stop and I say go go go, oh no.
You say goodbye and I say hello
Hello hello
I don't know why you say goodbye, I say hello
Hello hello
I don't know why you say goodbye, I say hello.

While some advocate their use as a means to attract and retain employees, others intimate their inevitable demise. Either way, one thing is certain. More and more companies seem to favor plan freezes in order to cut costs.

Dow Jones Newswire reporter Steven D. Jones points out that the newly enacted Pension Protection Act of 2006 encourages freezes by compelling companies to fully fund their obligations within a prescribed period of time.

Whether a freeze is "soft" and shuts out new entrants or "hard" and also halts benefits from further accruing, current retirees are not typically impacted. On the other hand, people in the system could end up with less money when benefits are tied to time in the plan.

Even when companies are flush with cash, freezing may make sense. Retiree longevity comes with a hefty pricetag in terms of funded benefits. Moreover, forthcoming accounting rules will force disclosure of pension obligations onto the balance sheet, an unwelcome event for some, especially if it leads to loan covenant breach.

Even writing from a few sunny vacation days in Arizona, this author has to admit that the pension climate sometimes seems downright Arctic.

Jacket anyone?

Is Having Children a Patriotic Duty?

Low birth rates, combined with large pension obligations, could spell trouble. That's why, according to several recent articles, many countries are now offering incentives to encourage natural parenting. Immigration reform is another approach.

Without change, countries such as Japan expect to cut pension benefits precipitously. Companies are worried too. A labor shortage could erode profitability in a big way.

There are so many questions. It's hard to know where to start.

1. Is it an invasion of privacy for national policy-makers to encourage individual lifestyle choices in order to preserve social benefits and promote "the greater good"?

2. Will working women respond to financial incentives to give birth or fret that it could deter them from climbing the corporate ladder?

3. Will child-free adults feel like social miscasts for not having children?

4. What should companies spend to create a "child friendly" work space and how will it impact shareholder value?

5. What is the nature of optimal immigration reform?

6. Should companies reach out to already retired workers and how could that affect the workplace dynamic between Generation X and Baby Boomers?

These, and a host of other queries, will keep politicians, sociologists and business professionals busy for months to come.

For background reading, try these articles.

1. "Cash Incentives Aren't Enough To Lift Fertility" by Mark Fritz, The Wall Street Journal, August 17, 2006

2. "Retiree benefits grow into 'monster'" by Dennis Cauchon, USA Today, May 24, 2006

3. "Low Japan birth rate may force pension cuts-report", Reuters, July 2, 2006

Hi Ho Hi Ho - It's Off to Work We Go

Do you have happy workers? Productive workers? Loyal workers? So many news stories address the financial dimensions of THE pension issue. While important, ultimately the story is about the employees, isn't it? Ignoring tax considerations, companies provide benefits to protect human capital. Though this asset shows up nowhere on a company's balance sheet, it is nonetheless vital to profitability and growth. This is especially true for countries and industries where intellectual prowess determines success or failure.

According to a recent article in FORTUNE, the new paradigm urges managers to "hire passionate people". Citing research done by Christopher Bartlett of Harvard Business School, employees "want a sense of purpose". (See "Tearing Up the Jack Welch playbook" by Betsy Morris.)

In their best-selling book, First, Break All the Rules: What the World's Greatest Managers Do Differently, Marcus Buckingham and Curt Coffman regale the reader with countless suggestions as to how to manage people more effectively, including the need to keep people motivated.

Ironically, at a time when identifying and cultivating human potential is paramount, some leaders are still missing the mark. In today's Wall Street Journal, Erin White describes the disconnect between what companies say their performance reviews are supposed to measure versus what employees describe as their perceived opportunity set to advance and contribute. (See "For Relevance, Firms Revamp Worker Reviews".)

With so many companies shifting away from defined benefit plans, will there be a concomitant change in worker happiness? Do employees really choose a work situation based on benefits? Could plan sponsors be taking a short-term view without acknowledging long-term consequences? Do employees favor a parental approach or is individual empowerment the touchstone (in which case 401K and other choice-focused plans make perfect sense)?

There are no easy answers. People genuinely disagree about the role that benefits (quality, quantity, form) play in attracting and keeping good people.

One thing is certain, however. Corporations everywhere (U.S. and abroad) will be affected by changing demographics (recently described elsewhere in this blog). An oft-discussed dearth of skilled workers compels companies to think long and hard about the link between benefits and the bottom line.

Is Sixty the New Thirty?

Many experts agree with Betty Friedan that "Aging is not 'lost youth' but a new stage of opportunity and strength." Unprecendented advances in healthcare technology and amassed wealth make life a happy lot for countless seniors.

Gray power is here to stay.

According to a report from the National Institute of Aging, "the U.S. population age 65 and over is expected to double in size within the next 25 years. By 2030, almost 1-out-of-5 Americans - some 72 million people - will be 65 years or older. The age group 85 and older is now the fastest growing segment of the U.S. population."

The U.S. is not alone. The AARP website includes an Associated Press story that ranks Japan as the "most elderly" country, pushing Italy to second place, with the elderly making up "almost 27 million of Japan's total population of nearly 128 million". reports that UK seniors account for eighty percent of the nation's wealth and forty percent of consumer spending. The financial services industry is gearing up for the nearby demographic tidal wave of seniors in need of estate planning and retirement services.

On the jobs front, countless numbers of seniors are taking suits and briefcases out of the closet and returning to work. To help combat the ill-effects of the silver ceiling, the AARP has created a National Employer Team to bring together various companies and older workers in search of work.

It's easy to understand why hiring the 65-plus set has appeal. A company enjoys ready access to well-trained workers, offsetting an otherwise scarce supply of labor. Rehiring employees might also mean that millions of dollars of retirement benefit payments are deferred until a later date. State and federal governments realize higher tax revenues. Seniors who want to work avoid the pressure of being forced into an unwanted, premature retirement.

All in all, a good thing!

As writer Lisa Belkin aptly states in the July 2, 2006 New York Times: "The Best Part Comes in the Third Act".

So does this mean that sixty is the new thirty and that being fifty makes one a veritable youngster?

Note: The photo, taken by Jud Burkett with the Spectrum, accompanies a story about Senior Olympics.

Longer Life Spans - Bigger Pension Liabilities

According to economist John Maynard Keynes, "In the long run, we're all dead." That may be but the long run is getting longer. The Centers for Disease Control and Prevention report that "life expectancy for Americans has reached an all-time high" with women expected to live to 79.9 years and men giving way around 74.5 years. The good news is not unique to the U.S. More than a dozen countries have a life expectancy at birth of more than 80 years. What accounts for the female factor? Researchers Daniel Kruger and Randolph Nesse offer that men take more risks than women, exposing themselves to danger, especially in their twenties. (The gap seems to narrow over time.)

Living longer could be a blessing or a curse. Liz Pulliam Weston makes a compelling case that women are in retirement crisis mode. She warns that the fairer sex is likely to experience job discontinuity (and related income diminuition), earn less on average, outlive a spouse and save too little. Then there's a marriage penalty since "Single women are four times more likely than couples to live in poverty."

In pension land, longevity spells trouble. Plan sponsors find themselves in the unhappy position of having to fund benefits for an additional period. A KPMG study estimates a 2005 pricetag for British companies of "an additional 20 billion pounds in pension liabilities".

Longevity derivatives offer some hope. One form, annuity bonds, pay coupons that are linked to a pre-specfied survivorship index. From an investor's perspective, a low correlation with traditional offerings has appeal. Mortality bonds are another possibility. According to Kevin Dowd, one bond paid principal based on an international mortality index with a "generous floating coupon payment in return for accepting the risk of a reduced principal payment in the event of a catastrohic mortality deterioration". Yet another variation, still in its infancy, is the longevity swap. The outlook is mixed. In "The Grave Problem with Longevity Risk", professor Dowd describes advantages and disadvantages of this emerging market.

If actuarial predictions prevail, financial engineers could be extremely busy. Companies and governments will need help in managing pension and post-retirement healthcare benefits that are growing with kudzu-like speed.

Is There a Pension Crisis?

People are living longer, requiring even more in the bank to pay bills once they quit working. Studies consistently show that most people are saving very little and are not financially prepared to retire any time soon. Social Security trustees project costs to exceed tax revenues as early as 2017 and are urging reform. This is particularly compelling now that only three workers pay taxes into the system to support each existing beneficiary, compared to the original sixteen persons at inception.

Last summer, the U.S. Government Accountability Office released a study citing the largest ever deficit of $23.3 billion for the Pension Benefit Guaranty Corporation, a single-employer insurer that protects the retirement incomes of more than 40 million American workers in excess of 30,000 defined benefit pension plans. Executive director, Bradley Belt, stated that "financially troubled companies have shortchanged their pension promises by nearly $100 billion, putting workers, responsible companies and taxpayers at risk." In July, Standard & Poor's reported that defined benefit plans for 364 of the S&P 500 Index member companies remain under-funded by $165 billion. Public pension plans are struggling too. National Association of State Retirement Administrators statistics indicate a $300 billion aggregate pension shortfall for the largest state and city plans.

What do you think about the current retirement situation? Choppy waters or calm seas?

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