Retirement security is the central policy concern of our time. Blitzstein, Mitchell and Utkus,
Restructuring Retirement Risks. Oxford University PRESS, (2006).
Dave Babbel Presentation
2007
Dave Babbel Presentation
2008
Dave Babbel Presentation
Real yields falling
0.4%-2.8% returns on SS contributions
Boomers begin to turn 67 this year
Demise of pensions
Women s Issues
Out-of-pocket medical costs
Longevity extends
Baby Busters
Decreased Importance of SS
Dave Babbel Presentation
Increasing longevity of population
October 16, 2012
“72 is the 'new 30' for people in the West, say scientists” Over the past 160 years, women in developed countries have increased their life expectancy by 40 years. Thus, for each four years that passed, women added one more year to their life expectancy.
THE SATURDAY INTERVIEW
-
November 9-10, 2013
Dr. Francis Collins: Politics on the Frontier of Science
“These advances include the reality that on current pace, every day you survive you add about five or six hours to your life... A person born in the U.S. today will live about 30 years longer than somebody in 1900.”
Manager, The Human Genome Project Director of the National Institutes of Health Dave Babbel Presentation
Annual percentage of deaths among 65-year-old men and women 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 65
75
85
95
105
115
Age Dave Babbel Presentation
Dave Babbel Presentation
Implicit Rate of Return on SS Contributions
Dave Babbel Presentation
Rate of return, in percent
Return on Social Security Contributions
3.5 3.0
2.8
2.5 2.0
1.8
1.5
1.2
1.0 0.4
0.5 0.0 Low
Average
High
Maximum Taxable
Earnings Level
Source: Social Security Administration -- rates of return for women http://www.ssa.gov/OACT/NOTES/ran5/an2004-5.html Dave Babbel Presentation
Rate of Return on Contributions as a Function of Earnings Effect of Baby Boomers on U.S. Population Ratio ( 65+ Year Olds / 18+ Year Olds ) 30 %
25 %
Historical
Projected
20 %
15 %
10 % 1970
1990
2010
2030
2050
• Began turning 66 last year • 27% of US population • 47% of all households
Dave Babbel Presentation
Women s issues: • a dozen recent studies show females less risk tolerant than males • risk tolerance degrees vary for taking on high financial risk: • unmarried males • married males 1.4 X • married females 1.7 X • unmarried females 2.0 X • generally outlive their husbands by 6-8 years, and unless they participate in the financial decision making, may have to live with the consequences • older women 50% more likely than men to live in poverty • 75% of residents of nursing homes are women; most are widowed, functionally dependent • women generally have much longer stays than men in nursing homes; more men have a younger caring wife to delay their entry into a nursing home; they consume the couple s financial resources for his care, leaving little • average annual cost of institutional care in 2011 was $77,745 for a private room, according to a survey sponsored by Genworth • discuss military experiment and aversion to annuities – men vs. women
Dave Babbel Presentation
Reverse Dollar Cost Averaging Stable Return – S&P 500 average monthly return, Jan 1926 - Mar 2009 Log (Wealth) average historical annual rate held constant @ 11.33%
$1,550,000
Years
Dave Babbel Presentation
Reverse Dollar Cost Averaging Stable vs. Normal – S&P 500 monthly Total Returns Jan 1926 - Mar 2009, 1 million trials Log (Wealth) average historical annual rate held constant @ 11.33% Normal median = 8.68%
$1,550,000
$20,000
Years
with mgt exp: ($226,000)
Dave Babbel Presentation
Big number! 1,000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000,000,000,000,000,000, 000,000,000,000,000 (actual chances are 10 billion times lower‌) Dave Babbel Presentation
Reverse Dollar Cost Averaging Stable vs. Normal vs. g-and-h – S&P 500 monthly Total Returns Jan 1926 - Mar 2009, 1 million trials Log (Wealth) average historical annual rate held constant @ 11.33% Normal median = 8.68% g-and-h median = 7.58%
Years
Dave Babbel Presentation
Reverse Dollar Cost Averaging g-and-h distribution S&P 500 monthly Total Returns Jan 1926 - Mar 2009, 1 million trials Log (Wealth)
g-and-h median
Years
Dave Babbel Presentation
Reverse Dollar Cost Averaging g-and-h distribution S&P 500 monthly Total Returns Jan 1926 - Mar 2009, 1 million trials Log (Wealth) g-and-h interquartile g-and-h 0.5% & 99.5% g-and-h median path
g-and-h 99.5% g-and-h interquartile
g-and-h 0.5%
Years
Dave Babbel Presentation
Go to: fic.wharton.upenn.edu Then go to “Policy Briefs� Then go to Personal Finance
Dave Babbel Presentation