Slide 1: Addressing Longevity Risk: The Retirement Spending Challenge
Addressing Longevity Risk: The Retirement Spending Challenge Donald A. Stewart Chief Executive Officer 28 February 2008 1
Slide 2: A new challenge for retirement
A new challenge for retirement Factors affecting retirement: • Baby boom generation is set to retire • Shift away from defined benefit Retirement pensions SPENDING challenge • Health care costs continue to increase • Longevity increasing at remarkable rate 2
Slide 3: International Longevity Trends
International Longevity Trends 100 90 “Female life expectancy in the 80 record holding country has risen 70 for 160 years at a steady pace of almost 3 months 60 per year.” 50 40 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020 Source: Oeppen, J. and Vaupel, J.W., Broken Limits to Life Expectancy, 2
Slide 4: Trends impacting disbursement
Trends impacting disbursement • Decline in ongoing Defined Benefit pension plans • DB plans being replaced by DC plans around the world: Difficult to predict lifetime income with DC plan vs. DB plan Need to find ways to increase security for DC plan members • Investment returns play significant
Slide 5: Historical Pension Arrangements
Historical Pension Arrangements DB plan Government Age 65 75 Source : HRDC, Statistics Canada, Florida State University, McKinsey analysis 5
Slide 6: Pensions in Future
Pensions in Future Shrinking guaranteed Growing life income expectancy DB plan Government Age 65 75 85 Source : HRDC, Statistics Canada, Florida State University, McKinsey analysis 6
Slide 7: Health Care Spending
Health Care Spending 34% 9% Individual 21% Employer 9% 57% 70% Government 2005 2015 Source : CIHI Spending Database; Statistics Canada; McKinsey Analysis 7
Slide 8: Anticipated Retirement Lifestyles
Anticipated Retirement Lifestyles First 5 years of retirement 5-10 years of retirement 10+ years of retirement 84% 15% 1% Travel 76% 20% 4% Starting a business 56% 32% 12% Relocating to a new place 54% 27% 19% Assisting charitable organizations Source: Sun Life Financial U.S., The Retirement Spendin
Slide 9: Solutions
Solutions • Sophisticated income security products • Longevity insurance • Target date investments • Auto-pilot DC plans 9
Slide 10: A shared responsibility
A shared responsibility • Financial institutions • Financial planning community • Employers • Individuals 10