- Overview
Responsibility for retirement income planning is shifting from the employer to the individual consumer at an increasing rate. As a result, rising amounts of retirement wealth are represented by lump sums and less through guaranteed income streams. In addition, the diminishing number of employers offering post–retirement health benefits as well as tightening restrictions on the use of Medicaid for long–term care expenses have placed more financial responsibility on retirees.
Historically, the retirement planning industry has focused primarily on high–income/high net worth retirees. However, as more middle–income consumers begin to enter retirement without guaranteed income streams, the need to facilitate retirement planning for these individuals has become evident. In response, the Society of Actuaries' Committee on Post–Retirement Needs & Risks is seeking researchers for a two–phased effort to help address this growing need.
- Research Objective
For Phase I of this effort, the primary objective is to develop consumer profiles that describe characteristics representing today's middle–income/mid–level net worth individuals who are approaching or just entering retirement. The researcher will produce a set of profiles (approximately 8 to12) that would represent and illustrate major issues faced by those entering retirement today. Once completed, these profiles will then be used as the basis for Phase II of this effort.
The objective of Phase II is creating retirement strategies for each of the profile situations. The retirement strategies would focus on: questions the financial advisor and individual consumer should ask; the risks that should be considered in devising the strategies; and the range of potential solutions that could be applied, as opposed to only single, narrow ones. As an alternative approach, solutions for each profile may be illustrated through models that provide flexibility for differing life expectancies, health status and other factors. The expected approach for illustrating solutions should be described in the proposals.
- Expected Deliverables
Respondents to this Request for Proposals are free to propose to either Phase I, Phase II or both phases. The following are further details about the expected deliverables for each of the phases.
Phase I: Definition of Consumer Profiles
In Phase I, approximately 8 to 12 consumer profiles will be developed that best capture the range of characteristics for the middle–income/mid–level net worth consumers. The profiles will specifically exclude lower–income consumers (those whose retirement needs are met almost exclusively by Social Security and other forms of social assistance) and high–income/high net worth consumers (for whom the financial risks of retirement are minimized due to their income/net worth levels, and whose primary concerns become estate planning and taxation).
The following are expected elements of each of the profiles:
- The financial issues should focus on the US market.
- The current age of individuals profiled should be between 50 to 75.
- An individual's income streams and assets (including pensions and other annuity streams, Social Security benefits and income earned in retirement) should be specified in the profiles.
- Socio–economic characteristics in the profiles should target middle market consumers who have at least $50,000, but no more than $1,000,000 net worth (including real estate, pensions and other annuity streams but excluding Social Security or government assistance). These assets are measured based on the total for a household, rather than an individual.
- The profiles should include both pre– and post–retirement individuals.
- The profiles should represent a range of gender and marital status combinations.
- The profiles should include scenarios reflecting disability, early workforce exit and other such factors.
It is preferred that the characteristics specified in the profiles be based on observations from public or private data sets in order to give them statistical validity. Furthermore, any data sets used should ideally reflect conditions as they are evolving today. In terms of how representative the profiles are, the proposal should indicate whether it is intended to produce estimates of the percentage of the general population represented by each profile. It should be noted that these types of estimates are not required for this effort, but may be helpful information for understanding the context of the results.
Phase II: Development of Retirement Income Planning Strategies
Phase II involves the development of retirement income planning strategies for the hypothetical consumers in the profiles. These strategies should include plausible solutions as well as the thought process used to derive those solutions. Solutions can include discussion of appropriate financial products but should not be solely insurance product focused; they should consider other approaches including retirement timing and lifestyle/employment options. The strategies should be clear enough for a financial advisor or reasonably knowledgeable consumer to understand.
Strategies should consider traditional financial planning rules of thumb, such as replacing 75–85% of pre–retirement income and whether they are appropriate for a particular profile. Communication of the applicable strategies can be through worksheets, decision flowcharts, summary issue charts and/or case studies with model solutions. Related to communication, a desired result of the research is observations on more effective ways of communicating for financial advisors and consumers.
In the development of the strategies, the following are issues for consideration:
- What risks affect these hypothetical consumers? How do these risks change over time? (a useful overview of retirement risks can be found on the SOA web site.)
- What factors should advisors/consumers be aware of in selecting appropriate strategies to mitigate risks?
- What questions should consumers ask before retiring? What life decisions could consumers make to impact their strategy (e.g. delay retirement)?
- In what scenarios might consumers who are doing their own planning find professional advice beneficial?
- What life events can alter consumers' retirement planning (e.g. disability, working later in retirement, loss of a spouse)? How might those change the suggested strategies?
- How might strategies differentiate between basic needs, discretionary spending, luxury purchases, and the desire for bequests?
- What is the impact of income received from guaranteed streams versus conditional streams such as part–time employment in retirement?
- How should financial products be evaluated and where do they fit into solutions?
- How would the strategies differ with varying ages of death?
In terms of the deliverables, it is important to note that the Committee on Post–Retirement Needs and Risks is open to alternative suggestions for meeting the goals of this effort.
- Proposal
To facilitate the evaluation of proposals, the following information should be submitted:
- Resumes of the authors, including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one author is involved for each report, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the authors as well as for the firm or institution on whose behalf the proposal is submitted.
- An outline of the approach to be used. Details should be given regarding the manner in which appropriate published material will be identified and evaluated, search techniques to be used, collateral material to be consulted, and possible limitations of the review and analysis.
- Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
- A schedule for completion of the research, identifying key dates or time frames for research completion and report submission.
- Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.
- Selection Process
The SOA is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals may also be sought, but the organizations will make the final decision. The SOA's Research Actuary will provide staff actuarial support. A Project Oversight Group (POG) will be appointed to oversee the project upon selection of the proposal.
- Questions
Any questions regarding this RFP should be directed by fax, or e–mail to: Steven Siegel, SOA Research Actuary (ph: 847.706.3578, f: 847.273.8578).
- Notification of Intention to Submit Proposal
If you intend to submit a proposal, please send written notification by February 1, 2008 to Jeanne Nallon, SOA Research Assistant, f (847.273.8592), or mail to the Society of Actuaries, 475 N. Martingale Road, Suite 600, Schaumburg, IL 60173–2226.
- Submission
Please e–mail a copy of the proposal to: Jeanne Nallon.
Proposals must be received no later than February 15, 2008. It is anticipated that all authors who have submitted proposals will be informed of the status of their proposal no later than March 15, 2008.
Note: Proposals are considered confidential and proprietary.
- Conditions
The SOA reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available to proceed. The SOA also reserves the right to redirect the project as is deemed advisable.
The SOA intends to copyright and publish the results of this research. The research will be considered work–for–hire and all rights thereto belong to the SOA. However, appropriate credit will be given to the researcher(s).