Defined Contribution Investments for Retirement Income November 15 2011 Participant Research S hows T hat T here Is a Need for New ProfessionallyManaged I ncome S olutions 1 ID: 780598
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Slide1
Meeting Data/Data as of
Managing Defined Contribution Investments for Retirement Income
November 15, 2011
Slide2Participant Research Shows That T
here Is a Need for New, Professionally-Managed Income Solutions
1
Prefer that a professional investment expert make decisions about how to invest money in the plan
Prefer to put retirement nest egg in account that manages how much is spent each year to
ensure participant doesn’t run
out of money
Investment Management
Spending Management
A
majority of participants would rather use a professional investment expert when it comes to money management and investing in a DB-like option.
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Dimensional/Boston
Research Group study of 1,000 plan participants in January
2011.
Slide3Participants Also Desire More
Certainty in Terms of Their Expected BenefitsParticipant Response When Asked to Choose
2
Wealth maximization at the risk of not having
enough money for
a minimum acceptable
lifestyle at retirement
Wealth outcomes in a range between m
inimum acceptable to a comfortable lifestyle at retirement
Dimensional/Boston Research Group study of 1,000 plan participants in January 2011.
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Slide4Retirement Confidence Findings
3
On track to have enough money in retirement to live desired lifestyle
Know how much money
is need
to
accumulate
in order to live desired lifestyle in retirement
Dimensional/Boston
Research Group study of 1,000 plan participants in January 2011.
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Slide5QDIA Income Solutions
Must Be Designed A
round a Goal
4
Goal
To give every participant the best possible chance of having a successful retirement.
They’ll be “successful” if they can maintain their standard of living.
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Slide6A Solution Must Consider Each Employee’s Essential and Desired Income
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What they need at retirement: Essential
Less than this income will not allow them to retire successfully.
What they desire at retirement: Desired
More than this income is attractive only if it is “risk free.”
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Slide7Appropriately Structured Investment Strategies Can Narrow the Distribution of Participant Outcomes
6
Essential
Desired
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Dimensional Managed DC
Slide8Participants Need to Understand the Relevant Tradeoffs
7
Goes Up
Goes Down
Raise Desired Income Target
Raise Essential Income Target
Contribute More
Work Longer
Participant Action
Probability of Achieving Desired Retirement
Income
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Slide9Retirement Income Options
Nominal Immediate Income Annuity
Immediate Income Annuity
with CPI rider
Variable Annuity
with guaranteed income floors
Longevity Insurance
Laddered TIPS Strategy
IRA
with 60/40 allocation
Options
Longevity
Risk
Inflation
Risk
Investment
Risk
Interest Rate
Risk
Income
Control
Effectiveness of Hedging
8
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Slide10Disclaimer
The underlying investments in Dimensional Managed DC are subject to market risks and may fluctuate in value over time. There is no guarantee of achieving the target income payout during retirement. Income from retirement payout contract depends on the claims-paying ability and strength of the issuing insurance company.
Dimensional Retirement (an affiliate of Dimensional Fund Advisors LP) is an investment advisor registered with the Securities and Exchange Commission. Dimensional Managed DC is available through Dimensional Retirement.
Investing entails risks, including possible loss of principal. No assurances or guarantees are given regarding the performance of any investment.
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