Playlist: Featured

Roger Ferguson: America's retirement crisis

September 27, 2012 1:08:19
Kaltura Video

Roger Ferguson looks at the current retirement landscape, discusses how it has changed over time, and details some of the challenges we now face as a nation in funding retirement. September, 2012.




               >> Susan: I'm Susan Collins, the Joan and Sanford Weill

               Dean here at the Gerald R School -- Gerald R. Ford School

               of Public Policy and I'm delighted to have you with us

               this afternoon.  On behalf of the Ford School community,

               it's a real pleasure to welcome you for another in our

               series of distinguished lectures, the policy talks at the

               Ford School.  This afternoon we are very honored and very

               pleased to have with us Dr. Roger Ferguson who is

               President and Chief Executive Officer of TIAA-CREF.

               You'll find a biography in your program, and I'm not going

               to give all of the details, but I think as you take a look

               at it, you will be very struck like I have been by just

               how varied his career has been.  He has reached the

               highest levels in an incredibly wide range of policy areas

               and just to highlight a few, he has served as Vice Chair

               at the Federal Reserve Board of Governors.  He is a member

               of President Obama's counsel on jobs and competitiveness.

               He's a lawyer by training and at one time was a partner at

               McKinsey & Company.  He's shaped policy from the private

               as well as nonprofit sectors as Head of Financial Services

               for Swiss Re.  And on the board of a number of nonprofits

               and, of course, now in his current role as CEO of a

               Fortune 100 provider of retirement services.  I first met

               Roger when he was a Ph.D. student in Economics at Harvard




               and I was an undergraduate economics major.  And he was a

               very thoughtful and supportive colleague then and has been

               ever since.  And so I, and many others in the profession,

               are very grateful to him for that.  This past year he

               co-chaired a National Academy of Sciences panel on which I

               was a member.  That panel was convened by the United

               States Congress to examine some of the same issues that he

               will focus on in his remarks this afternoon.  What are the

               long-term economic implications of an aging population?

               Can our government maintain current levels of publicly

               funded support for older people?  What are the trends in

               retirement ages and the prospects for people working

               longer?  And what are the levels of personnel savings

               today that are necessary in order to maintain current

               living standards in retirement for a range of economic

               scenarios?  These are very important and challenging

               questions.  The panel actually released its findings just

               two days ago and you might have seen some of the press

               coverage from the briefing that Roger and his co-chair

               gave.  Again it's very important information for all of us

               to understand and grapple with.  And so we're so pleased

               today to be able to welcome Dr. Ferguson to share his

               views about it.  He's been very generous already with his

               time today meeting with students and faculty as well as




               delivering this public lecture.  And he's graciously

               agreed to take questions after his remarks.  And so from

               the audience just before 5:00 o'clock we will be

               collecting cards.  And so we invite you to write questions

               that you might have and we will pick them up a little bit

               later in the afternoon.  Professor John Ciorciari of the

               Ford School faculty will help to select questions from the

               cards or from Twitter.  We invite questions from Twitter

               as well as -- and along with one of our graduate students

               Dawn Lynn Kaiser who will be actually asking the questions

               this afternoon.  And so with that it is my honor and great

               pleasure to invite Dr. Ferguson to the podium.


               [ Applause ]


               >> Dr. Ferguson:  Thank you very much for that kind

               introduction.  And let me be the first to say that it's

               really a pleasure for me to be here at the Ford School.  I

               want to thank Susan Collins for inviting me.  I want to

               take a moment and recognize a couple of friends in the

               audience.  Marina Whitman and her husband Bob are back

               there.  So I want to say hello to you and nice to see all

               of you.  And it's really a pleasure for me to be here in

               part because my linkage to the school goes back to the




               original dean, Ned Gramlich, who served with me on the

               Board of Governors at the Federal Reserve and I counted as

               a friend for many, many years.  And finally and most

               importantly I must say being an MR is important because

               you get to go to Comet Coffee which is an important stop

               in America as all of you know.  So it is a pleasure for me

               to be here and I will say that one of the great things

               about the Ford School is that in educating tomorrow's

               leaders and also conducting research, this school embodies

               a hope for a better tomorrow and we're counting on all of

               you to help us get through some of the pressing problems

               that I'm going to be describing and we'll talk about in

               the Q and A session.  So today I want to take a look at

               one of the more profound challenges that we are facing as

               a nation and that's the issue of retirement, or more

               accurately, how to insure safe and secure retirement for

               everyone in America in the 21st century.  At a time when

               we have both great demographic and economic changes and

               challenges, retirement is an issue that's sort of natural

               for TIAA-CREF, as many of you may know, because we are the

               leading provider of retirement services in the higher ed

               space and the nonprofit space in general.  And, in fact,

               we were founded over 94 years ago to provide safe and

               secure retirement for college professors.  Another great




               reason for me to be here -- another honor for me in being

               here is that, in fact, the University of Michigan was the

               first school to sign up with TIAA-CREF back in 1919.  And

               so we have a special relationship with this institution.

               So how have things evolved for us?  Well, today we serve

               3.7 million people nationwide, not just in the academy but

               also in research, medical, and cultural communities.  We

               now do more than just retirement, even though that's our

               core, and overall our mission to provide financial

               security and well-being is unchanged.  So we've watched

               with alarm as retirement has become a source of increasing

               angst across our nation.  Americans confidence about

               achieving a comfortable retirement has hit record lows in

               the faces of factors such as a 2008 financial crisis, the

               shift from defined benefit or DB, plans to define

               contribution or DC plans, the aging of the population, the

               explosion of healthcare costs.  And all that adds up to

               some uncertainty about the future of Social Security,

               Medicare and Medicaid.  And then many of us recognize that

               the personal savings rate for many Americans and for

               America overall has been abysmally low for some time.  So

               it therefore concerns us that most workers -- for most

               workers retirement has become much more of a

               do-it-yourself activity.  Even as far too many of our




               citizens lack financial literacy skills to make the sound

               decisions about savings and investment and retirement that

               they're being called upon to make.  So we at TIAA-CREF

               have been speaking out about the need for a new retirement

               system, one that fits the realities of the 21st century.

               We've also worked to highlight the needs for greater

               financial literacy.  But clearly there's much more work to

               be done.  So let me quote just a few statistics.  Just

               14 percent of Americans said that they're, quote, very

               confident that they will have enough money for a

               comfortable retirement.  That's in the most recent

               Employee Benefits Research Institute Study on Retirement

               Readiness.  That same study indicated that 60 percent of

               Americans say they have less than $25,000 -- less than

               $25,000 in retirement savings.  And then according to a

               recent Gallup survey, 66 percent of Americans said that

               their top financial concern is not having enough money for

               retirement.  The need for actions only become clearer

               based on the work that Susan Collins and I and many others

               did as part of our National Academy of Sciences study.

               And as she indicated we just released that study on

               Tuesday and I'll talk about that a bit more in a minute

               but it underscores the urgency of responding to the

               challenges of retirement that we're talking about.  So




               what I'd like to do in my talk today is look at three or

               four different things.  First, I want to talk about the

               issues, the broad macro issues that underlay the

               retirement landscape.  I'm going to talk a little bit

               about the potential solutions that might emerge over time,

               and then obviously I want to open up and leave plenty of

               time for questions and answers.  So let me talk first

               about the issues that underlie any discussion about

               retirement and that is the issue of the aging of the

               American population.  So the committee that Susan

               referenced was founded or started in 2010 to look at that

               issue and the macroeconomic effects of an aging

               population.  And the goal was to provide factual

               foundation as policy makers, particularly in Congress,

               think about and debate issues such as deficit reduction,

               Medicare, and Social Security.  The starting point for the

               study and obviously one of the major kicking off points

               for any discussion on retirement is the demographic shift

               that's now underway in which Americans age 65 or older

               make up an increasingly large percentage of the

               population.  In fact, people 85 and above are now the

               fastest growing segment of America.  And this is the

               result of two trends.  First being the rise in the average

               life expectancy in the U.S.  Today men can expect to live




               to be 76, women to 81.  Fifty years ago, the life

               expectancy was just 67 for men and 73 for women.  The

               second trend that doesn't get much discussed is the

               declining fertility rate.  Today there are 2.1 births per

               woman compared to 3.7 births for woman in 1957 at the

               height of the baby boom.  So together these two trends are

               what's driving our aging population.  It's not just about

               the baby boom generation.  Although the entry of baby

               boomers into retirement has certainly shined a spotlight

               on this phenomenon.  It's more than the baby boomers

               though.  It's also the other cohorts that are smaller just

               as the largest baby boom population moves towards

               retirement.  The second big story is that aging and the

               aging population is not just an American story.  By

               mid-century, many developing nations will catch up to the

               developed world in terms of old age dependency ratio.

               That's the number of elderly people as a share of the

               working age population.  That's remarkable considering

               that when I was in graduate school and Susan was an

               undergraduate, countries like China, South Korea, and

               Mexico were struggling just to feed their own people.  And

               now as all of you know and particularly in China because

               of the one child policy, they have a rapidly aging

               population as well.  The upshot of all of this is that




               there are fewer and fewer people working and they're

               supporting more and more people who are getting to an age

               that we consider retirement age.  And that's obviously a

               recipe for big fiscal challenges.  So our committee looked

               at what these trends, both in the U.S. and globally, will

               mean for the U.S. economy in the future.  And obviously in

               the U.S. economy the real challenge is the threat to

               health and stability of Social Security, Medicare, and

               Medicaid.  Together the cost of these three programs

               currently amounts to roughly 40 percent of all federal

               spending and 10 percent of the nation's GEP.  And we're

               already well aware of some of the challenges that the

               system is undergoing.  Just a few months ago, the trustees

               of Social Security projected that the combined trust funds

               will be exhausted by 2033, three years sooner than

               projected just last year.  They also reported that the

               ratio of workers paying taxes for Social Security

               benefit -- beneficiary will hit 2.8 workers per

               beneficiary this year.  That's down from 3.4 workers per

               beneficiary in 2000 so 12 years ago.  So our report seeks

               to clarify the issues that are relevant to policy makers

               and to suggest some potential options that they may want

               to consider.  And we do believe, and there's some positive

               news here that sound policies can, in fact, mitigate the




               negative effects that we're going to be confronting here.

               And that those policies don't have to be a combination of

               four different policy levers if you will.  One is the

               major structural changes to Social Security, Medicare, and

               Medicaid.  Secondly, a higher savings rate during working

               years.  Third, the possibility for many of us of longer

               working lives.  And fourth, the need to find greater

               revenue which frankly means having to raise taxes in order

               to pay for some of this.  The other thing that we focused

               on is that individual workers must be better prepared for

               retirement by planning ahead and by adapting their saving

               and spending habits.  So we therefore emphasize something

               that's unusual in this kind of report which is the need to

               take action sooner rather than later.  The longer our

               nation delays in making needed changes, the larger will be

               what we call the liability, the legacy liability that will

               be passed on to future generations.  And the larger the

               increase we'll need to make in terms of taxes on the

               future workers.  And frankly if we don't act soon, the

               larger the reduction of benefits will be called for for

               future retirees.  So it's imperative that we act now.

               We'll have more options and the cost of acting will be

               lower now than if we delay.  Our report also emphasizes

               that financial literacy has become on evener more crucial




               issue in light of these challenges.  We note that people

               who are not financial literate will have a much tougher

               time preparing themselves for the financially secure

               retirement that everyone wants, particularly in an

               environment in which there's so much uncertainty about

               Social Security, Medicare, and Medicaid and which

               Americans have greater responsibility for their

               retirements.  But sadly our nation is seriously

               under-informed when it comes to financial literacy.  A

               research by two professors, Annamaria Lusardi [assumed

               spelling] who was at Dartmouth, I think is now moved to

               George Washington University; and Olivia Mitchell of the

               University of Pennsylvania both of whom, by the way, are

               fellows at the TIAA-CREF University, our research group.

               So Annamaria Lusardi and Olivia Mitchell have shown just

               how unprepared many Americans are to make sound savings

               and investment choices.  In their study of people over 50,

               only one third of respondents were able to correctly

               answer three basic questions having to do with interest

               rates, the effects of inflation, and the concept of risk

               diversification.  My company obviously cares deeply about

               financial literacy because research has shown that

               financial literacy has a profoundly important effect on

               achieving retirement security.  People with a high degree




               of financial literacy are more likely to plan for

               retirement.  And then in turn those who plan for

               retirement are more likely to have better outcomes.

               Planning for retirement is a powerful predictor of wealth

               accumulation.  In fact, people plan for retirement have

               more than double the wealth of people who do not plan.

               And conversely people with lower financial literacy tend

               to borrow more, they accumulate less wealth, and they tend

               to select financial products with higher fees.  Folks with

               less financial literacy also less likely to invest in

               stocks, they're more likely to experience difficulty with

               debt including bankruptcy, and they're less likely to know

               the terms of their mortgages and other loans that they may

               have outstanding.  So the lack of financial literacy is

               certainly a broad issue in America.  But when it's viewed

               through the prism of race, the effects are even greatly

               magnified.  Minorities along with women and the least

               affluent have some of the lowest financial literacy rates

               in the country.  So it's not surprising when it comes to

               saving for retirement that studies have found serious gaps

               in the preparedness of African-Americans and Hispanic

               workers.  And the older problem is likely to become worse.

               There's a recent survey from the financial industry

               regulatory authority or FINRA that found that young




               Americans were less likely to be financially capable than

               older Americans.  And the latest jumpstart coalition

               survey of high school seniors showed that the financial

               literacy of high school students has fallen to the lowest

               level ever.  Now that's hardly surprising since 26 states

               have no financial literacy requirements at all in their

               K-12 education systems.  And only four states mandate that

               students take a personal finance class in high school.  I

               will say in this score there's some potentially

               encouraging information.  The National Conference of State

               Legislators reported that this year seven states have

               enacted legislature or passed resolutions promoting

               financial literacy.  And in 28 states such measures have

               either been introduced or are pending consideration.  So

               it's heartening that the nation is starting to turn to

               this crisis of financial literacy and obviously I hope

               that our NAS study will help drive that further.  So let

               me now turn to some of the changes that we are

               confronting -- or challenges we're confronting in funding

               retirement and how that's combined with the demographic

               and economic issues I've just talked about.  All of you

               probably know that once upon a time we talked about a

               three legged stool as an analogy for understanding

               retirement systems.  The three legs were pensions, Social




               Security, and personal savings.  And today all three legs

               are a little wobbly.  Pensions have become a thing of the

               past for most Americans in the private sector.  And the

               public sector headlines clearly indicate that states and

               municipalities are confronting a crisis of epic

               proportions in unfunded pension liabilities.  As I

               mentioned already, Social Security is in trouble as the

               trustees have attested.  And it will soon begin paying out

               more than it takes in.  And the U.S. personal savings rate

               has been completely inadequate for many years now.  Even

               back -- even dropping to negative numbers back when I was

               on the Federal Reserve.  So given the scenario it should

               be no surprise that Americans are less confident than ever

               about their ability to afford a comfortable retirement.

               People are also expecting to work longer and longer.  A

               recent survey found that 37 percent of people said they

               expected to work past 65 and that's tripled the percentage

               of 20 years ago.  So how did we get to this point of such

               uncertainty about the three legged stool?  Well, first

               we've seen the demise of traditional pension plans in the

               private sector over the past 30 years.  These traditional

               pensions are known as DB or defined benefit plans.  And in

               the old days you'd work for a company for many years,

               maybe for life and when you retired along with the gold




               watch, you'd get a monthly retirement check.  Importantly

               the size of the check that you would receive under a DB

               plan had nothing to do with investment returns and may

               have had nothing to do with your salary.  It -- rather it

               was based on service and age and every once in a while

               also earnings.  As recently as 30 years ago, 84 percent of

               private sector workers had access to this kind of DB plan.

               As of 2008 only 33 percent so from 84 down to 33 percent

               in the private sector have access to a DB plan of that

               type.  Today what's happened is the defined contribution

               plan, particularly the 401K, has become the primary means

               of saving for retirement in the private sector.  But the

               401K and other DC plans don't guarantee workers a specific

               retirement check amount.  Rather as all of you know, they

               are vehicles that enable employees to save for their own

               retirement and in many cases employers contribute as well.

               But the kind of retirement check that a worker ends up

               with depends on the combination of contributions made and

               investment returns earned during their working lives.

               Importantly and people forget this because things have

               changed so much but 401Ks were never intended to play the

               role that they do today.  They were never intended to be

               the core retirement system.  They were meant to be a

               supplemental retirement system to top off traditional DB




               plans.  And that's the fundamental problem with the new

               model.  Whereas once employers shouldered the

               responsibility and risks of funding retirement, today it's

               the workers who must bear that burden.  And workers who in

               many cases as I've indicated have no formal education or

               training in investing or have no financial literacy and

               they're called upon to make these very important

               decisions.  Moreover, there's ample evidence that a 401K

               based model in the private sector really is not doing the

               job in other ways.  Many eligible workers don't

               participate, many employers and employees don't contribute

               enough, many employees don't implement an appropriate

               asset allocation.  And finally and most troublesome, many

               employees do not hold on to their retirement savings.

               Instead they crack into their retirement nest egg to fund

               living expenses.  So in light of all these kinds of

               challenges, it is not surprising that McKinsey & Company,

               the consulting firm, found that the average American

               couple will be some $250,000 short of what they need to

               retire securely.  Another problem with the current model

               is that people tend to get up -- get caught up in the size

               of their account balances without really thinking about or

               having much knowledge about the income flow that will be

               required in retirement.  In fact, and this is hard for




               many people to get -- to gather because of increased

               longevity, many folks will need to fund retirement that

               can stretch 20 or 30 or maybe even 40 years.  So the

               challenge that people are facing is managing longevity.

               And managing longevity in which many of us will be living

               with chronic illnesses.  So in this new model, people need

               to see their savings not just as a pot of money but have

               to understand what the income stream is that's going to be

               associated with that pot of money.  So clearly the current

               model needs reform.  But to be quite balanced in this,

               there are some positive aspects of a 401K model.  First,

               it's an individualized system.  So that's something that

               people really care about and enjoy.  Secondly, a 401K

               system is more aligned with the way people work these days

               because individuals move around from job to job and do not

               work for a lifetime in one place.  Nevertheless these

               fundamental problems do remain.  So that's the private

               sector.  So far not so good.  Let's look to the public

               sector and I would say they're facing some equally

               challenging issues in the amount of retirement.  Their

               defined benefit plans do remain the dominant model with

               nearly 80 percent of employees having this type of plan.

               But all of you know from reading the headlines it's states

               and municipalities are struggling with large gaps between




               promised retirement benefits and current assets.  And it's

               been estimated that the unfunded liabilities in state and

               local pension systems have reached an astounding

               4 trillion dollars.  And now many government entities have

               been working on this and have been making changes in their

               plans and over the past two years, 39 states have enacted

               some form of revision including things like requiring

               employees to contribute more, tightening eligibility

               rules, and modifying how benefits are calculated.  So it's

               clear that in the public sector we need to bring some

               approaches that will bring greater clarity and cost

               certainly to employers while also bringing greater

               retirement security to workers.  So you can imagine that

               we at TIAA-CREF recognizing these challenges spent a lot

               of time thinking about these issues and trying to figure

               out what it would take to create a retirement system for

               the 21st century.  So what would a retirement system for

               the 21st century look like?  First, it would continue to

               recognize that helping employees achieve financial

               security in retirement is a shared responsibility between

               employers and employees.  So the risk shifting that's

               going on would end up in a middle place with both

               employers and employees having a responsibility.

               Secondly, retirement system for the 21st century would




               provide an income that could last a lifetime as I've

               indicated 20, 30, maybe 40 years in retirement.  I haven't

               talked much about it, but such a system would help

               employees to deal with healthcare expenses which loom as a

               very large financial burden as people live longer and as I

               said with chronic illnesses.  The fourth element of a

               retirement system for the 21st century would be that it

               would not really be one size fits all given the

               demographic and other challenges and changes in society.

               Such a system would have to be sustainable dealing with

               baby boomers, the 80 million of us who are going to be

               retiring over the next several decades.  And importantly

               it would include a strong dose of education and

               communication and advice recognizing that most people

               bearing a greater responsibility and not having enough

               financial literacy are going to need some assistance in

               making these tough decisions.  One model that's working

               well and therefore can, I believe, form national thinking

               and certainly form our thinking is the one that works in

               higher education, I believe, and wouldn't surprise you I

               suspect being that as CO at TIAA-CREF we are the leading

               provider of that kind of service.  And there are a number

               of things that I think stand out for the system that we

               have in higher ed that might be appropriate as a national




               level.  First, most of them feature mandatory

               participation, and so an automatic enrollment might be a

               feature of a retirement system for the 21st century.

               Secondly, employees must have the right mix of investment

               options that can help them build the kind of saving that

               they need.  And the mix of options needs to be optimally

               decided, not too many choices, not too few choices.  A

               third thing that we've seen is in the academic sector as

               you know the notion of preparing for retirement still is a

               joint responsibility with employees and institutions both

               contributing.  And finally employees typically have access

               to either a DB plan or an annuity option that provides a

               level of guaranteed income in retirement.  And then of

               course the important issue of education and advice is an

               important part of what we provide in our model.  And we

               believe that the model is working and, in fact, our

               participants tell us that.  In a recent survey by the

               TIAA-CREF Institute, we found that 75 percent of higher ed

               workers are confident that they will have enough money to

               live comfortably in retirement.  And that compares with

               just 49 percent of all U.S. workers so 75 percent versus

               49 percent.  So it's clear that one of the most pressing

               issues then is to move people into a system that provides

               for lifetime income.  And that's essentially making




               availability -- available financial security for

               everybody.  This is a particularly important issue now if

               I can think about one other segment and then wrap up here.

               ^M00:27:46 This is the issue of financial security for

               lifetime is quite important for everybody but it's

               particularly important for women.  And that is because

               women often end up with a nest egg that is half the size

               of that of a man of the same age and occupation.  And

               that's for a couple reasons.  One, is women still earn

               about 77 to 81 cents for every dollar that a man may make.

               And they often spend an average of 10 to 12 years out of

               the workforce caring for children or elderly parents.  And

               yet women as I've already said also live longer than men,

               and therefore, they'll have to support themselves through

               a long retirement with what might be a smaller nest egg.

               And so the bottom line for both sexes is how do we insure

               that people's primary savings vehicle is a DC plan can

               convert their savings into an adequate and secure income

               that lasts as long as they do.  And here the answer will

               not surprise you is annuitization.  There's a recent

               report by the government accountability office last year

               that encouraged annuitization as an important means for

               addressing the issue of a lifetime income.  And in that

               scenario people who are retiring purchase -- take part of




               their savings to purchase an annuity to deal with their

               basic lifetime income for the rest of their lives.  But

               the report noted that while annuitization is probably a

               smart choice for many Americans, just 6 percent of those

               in a defined contribution plan chose or purchased an

               annuity at retirement.  The other thing that this report

               noted is that many people took Social Security benefits

               before the full retirement age, therefore passing up the

               opportunity for higher benefit levels and additional

               lifetime income.  So the report found a big disconnect,

               this GI report between what experts recommend and what

               people do.  Because experts recommend that retirees

               convert a portion of their savings into an income annuity

               to cover necessary expenses and they recommended that

               people have an annuity instead of a life lump sum

               withdrawal.  And experts also recommended that you delay

               taking Social Security until reaching at least full

               retirement age and in some cases continue to work and save

               past full retirement age.  So they're clearly some

               important implications that the GAL study has found is

               that while experts have a sense of what folks should do,

               very few of our citizens outside of the higher ed space

               are doing it.  So let me close now by just summarizing all

               the things that I've said here.  First, talked about the




               aging population and recognition of that as a global

               problem.  That clearly presents a number of macroeconomic

               challenges to our nation, particularly for programs like

               Social Security, Medicare, and Medicaid.  But I also said

               that policy options do exist and implementing those policy

               options sooner rather than later can start to at least

               mitigate, not reverse, but at least mitigate some of the

               negative effects.  Or put it another way, the longer we

               delay, the higher the ultimate cost is going to be.  The

               second thing that I've said is that this demographic shift

               of aging baby boomers combined with the recession have

               really combined to shine a very bright spotlight on this

               retirement issue and on the need to build financial

               security that lasts a lifetime.  And indicated that

               obviously the issue of financial literacy is a very

               important part of this given the new requirements of

               individuals to bear some of the responsibilities.  We have

               to increase financial literacy.  And then finally I

               pointed out that there are some solutions, if you will, in

               building or outlining what a financial secure retirement

               system would look like for the 21st century.  So let me

               stop now by thanking you again for your attention.  Thank

               you for allowing me the opportunity to speak in this

               wonderful school, and I look forward to being able to




               answer as many questions as we can in the time that's

               allotted.  So thank you all very much and I'll turn it

               over to our moderators.  Thank you.


               [ Applause ]


               [ Pause ]


               >> Dawn Lynn:  Thank you very much for your lecture.  We

               do have questions from the audience and if you still have

               additional ones, please raise your hand and they'll be

               collected.  My name is Dawn Lynn Kaiser [assumed

               spelling].  I'm a second year Masters of Public Policy

               student here at the Ford School.  And Mr. Ferguson, our

               first question, what suggestions do you have regarding

               education programs geared towards planning for retirement?

               How early should this education begin and should it be a

               part of the federal education policy?

               >> Dr. Ferguson:  That's a great question and I think

               first it should begin as soon as possible if you will.

               Folks when they get their first job I think should start

               to be educated on these issues.  Obviously I've also

               indicated the importance of general financial literacy in

               K-12 in high school.  But if we could have a system in




               which there is first mandatory enrollment and then

               associated with that education at the very, very

               beginning, I think that's helpful.  And the education I

               think should be around a couple of things.  One is a

               generally sense of figuring out what one's risk tolerance

               is.  Two, figuring out there are some benchmarks around

               how much one might want to save and invest.  The third is

               the importance of diversification because a lot of

               individuals as we've discovered haven't understood the

               value of diversification.  And then the fourth is starting

               to educate everybody on what a life cycle might look like

               because I think many people underestimate how long they

               may well live in something that we might call retirement

               and therefore tend to think they're going to save too

               little.  And then the fifth thing -- or they tend to save

               too little.  And then the fifth thing obviously is the

               importance of thinking about not just building this big

               nest egg but what it means for lifetime income.  I do

               believe that it should be built into national policy.  I

               will tell you from my experience at the Fed where we did

               make financial literacy one of the priorities, it is very,

               very difficult even if it's a priority of a big and

               important financial federal agency, to figure out how to

               actually make it come to life.  And I think as I've




               thought about it part of the challenge is that so much of

               education policy is actually developed at state and local

               level.  And so what happens there I think is as important

               as what's happening at the federal level.

               >> Dawn Lynn:  Thank you.  Our next question, is the

               social security age destined to rise with life expectancy

               and should it?

               >> Dr. Ferguson:  Well, gee thanks for asking the easy

               questions. [laughter]  The ones that are not at all

               controversial.  I would say honestly I do believe over

               time the social security age is destined to rise with life

               expectancy and with the ability of people to work.  In

               fact, I think all of you probably know there was a

               commission from many years ago that already put us on the

               path towards a gradual increase in retirement age but I

               think we're going to have to take another look at that.

               Now the other thing that's important to say is while that

               may be true for many folks there still are a number of

               people in American society for which delaying retirement

               is almost physically possible.  And one of the things that

               happens, you know, all of us who do these sort of jobs

               that require a lot of intellect but not much in the way of

               physical activity.  You know, the moving of the mouse is

               not for many of us heavy work.  We ignore that even on our




               campuses and certainly in many parts of America there are

               a bunch of people for whom delay in retirement is really

               not an option.  And so we have to figure out how to be

               sensitive to both sides of this; right.  Because folks who

               influence policy makers tend to be those that sell, sure,

               you know, I intend to and therefore all of us can work a

               little longer.  True for a lot of Americans.  Society has

               changed over time but I do worry that those of us who do

               sort of white collar jobs or get folks who do other kinds

               of white collar jobs or blue collar jobs or pink collar

               jobs or they're called so I always hasten to add that I

               think social security retirement age is going to have to

               increase.  How that works for everybody I think is going

               to be one of the challenges that we have to work through.

               >> Dawn Lynn:  Thank you.  Our next question, what are

               your thoughts about the encore career idea new meaning

               for -- meaningful work often part-time for older adults?

               What policy changes would support more encore careers?

               >> Dr. Ferguson:  I think the so-called encore career or

               the second act or whatever it's called is pivotal frankly.

               I think it creates a great value for the individuals

               involved or has a possibility of doing that.  There are a

               number of things that I think stand in the way of that.

               In some cases depending on how you work and where you




               work, if you retire can you then come back as a consultant

               or in a part-time role.  There's a question of policy that

               affects some institutions.  But I think bigger than that

               is really, you know, there's not a business model yet

               that's evolved for having both full-time workers at a

               certain age and then so-called encore workers.  And so

               older folks who still want to be in the labor force find

               themselves in the, you know, forms of consulting, if you

               will, where there are sole practitioners.  So I think the

               real issue is not a policy issue.  It's really

               understanding how we build models that have in the

               workplace folks under so-called retirement age who are

               working full-time and working together with folks who are

               part-time, if you will, and doing an encore job.  But I

               think it's important to have that as sort of a way that

               all of us start to think about things because it's going,

               I think, to be inevitable for lots of folks.  And I think

               it's also good for society.  If I can lengthen my answer a

               bit in the report -- the DNS report that Susan and I

               talked about, there was some work done by a German

               economist Axel Borsch-Supan who got his Ph.D. at MIT but

               has done some very interesting work in some manufacturing

               and car factories in Germany.  Pointing out that teams

               that had people of different ages and different




               generations were more productive than folks that have --

               the teams that have only, you know, one generation.  And

               this is just sort of a special case of the general

               knowledge that we've learned -- actually, I think a

               University of Michigan professor has written books on this

               on the value of diversity in the workplace leading to

               better -- better answers and more productivity.  So we

               think of diversity in different ways around gender and

               race and other things but we shouldn't forget generational

               diversity as well.  And Axel's work actually shows that in

               a manufacturing atmosphere, productivity actually goes up

               if you have intergenerational teams.

               >> Dawn Lynn:  Thank you.  Our next question, with regards

               to securitizing income streams in retirement with

               annuities and the low annuity participation rate you

               mentioned earlier, how can we secure but simplify these

               annuity products and will this simplification increase

               participation in your opinion?

               >> Dr. Ferguson:  The answers, one, we do need to simplify

               annuity products.  Obviously, we at TIAA-CREF have a very

               good and simple annuity that works very well.  And in fact

               there's going to be a report that comes out that looks at

               our participants -- I don't have the report but I've got

               some of the data from it, and it shows that about




               40 percent of our participants when they retire typically

               take annuity income as their first draw from their

               retirement assets.  And then we also see that many people

               take more than one version of retirement income and they

               often what's called laddering their annuities.  And the

               reason I talk about our statistic that is about 40 percent

               is there's -- that's clear proof that a simple annuity

               that's in the plan and for which there's advice can get

               people to have the right kind of outcome.  Society as a

               large I think therefore can learn a couple lessons.  One,

               simpler annuities because a lot of the folks who talk and

               give advice are anti-annuity because annuities are very

               complex and can be expensive.  Secondly, we've got to make

               annuities part of the plan.  One of the things that

               happens in the 401K world is you have this big bucket of

               savings, you get to so-called retirement age, and then you

               have to make an annuitization choice and that's a hard

               choice for lots of people to make.  And then I think the

               third thing is really understanding better than we

               currently do what it is that holds people back from

               annuitization.  So simplifying is one of the answers.

               There's a professor at the University of Illinois named

               Jeff Brown who has talked about framing.  And if you talk

               about annuitization, people aren't very interested.  If




               you talk about guaranteed income for life, they are quite

               interested.  I think we also need to understand some of

               the -- I would -- not framing but sort of the more

               rational things that people worry about when it comes to

               annuitization such as having what's called an economics of

               request mode.  The desire to sort of leave money to others

               and you have to build annuities that allow that to happen

               as well.  So there's putting annuities into the plan,

               simplifying annuities, and then understanding and maybe

               adjusting the products so we can -- so we can respond to

               why it is that people do not annuitize.

               >> Dawn Lynn:  Thank you.  Our next question is actually

               from Twitter.  How do we assure women's economic security

               giving their lower lifetime incomes?

               >> Dr. Ferguson:  That's -- I love modern technology.

               It's a question from someone named Twitter so [laughter]

               My kids -- I have a 21 year old and 18 -- they'd be

               appalled I made such a stupid joke.  So I know what

               Twitter is.  That's a very good and a very important

               question so let me tell you what we've tried to do.  What

               we have done in our company recognizing these issues

               around gender differences, we've actually developed a

               training session financial literacy symposium, I guess you

               would call it, a seminar for women that's taught by our




               women professionals.  And that is starting to show some

               real traction just in terms of the number of people who

               are interested in doing this.  And the most important

               statistic is that after these general seminars which last

               for about an hour, hour and-a-half something of that sort,

               we're getting a very, very large turnout of folks who

               want -- women who want to sign up for counseling sessions

               and then they're tending to take action.  They're tending

               to save more, diversify their portfolios and other things.

               So I think -- now we are a microcosm of what I think has

               to happen more broadly.  Which is, one, recognizing that

               there are gender differences and sometimes it's hard to

               talk about gender differences without seeming to be, you

               know, doing things that are inappropriate but if there are

               then one should recognize them.  And two, then

               understanding with those differences how you leverage them

               if you will into getting people to take action.  And I

               think we started to figure out a little bit of that.  How

               we do that at a national level, I think ultimately it's up

               to institutions such as this and such as mine to partner

               together to give women a chance to understand these issues

               better.  Now you know easier said than done.  It works in

               places where you've got, you know, institutions like

               University of Michigan and TIAA-CREF.  What we do more




               broadly at a national level, I do think it goes back to

               K-12 financial literacy for one thing.  I think it goes

               back to that early enrollment moment where we start

               immediately to identify what the differences might be.

               And so those are some of the other things that we can do

               but the challenge here is that there really is no silver

               bullet because giving financial advice at some broad macro

               level is not nearly as impactful as what you do sort of

               case by case.  And that's sort of big challenge so I've

               got -- we know a little bit about what one can do if you

               got the resources.  I can't say there's sort of an obvious

               sort of national answer that's going to work for, you

               know, half the population but it's going to be very

               important for us to start to look at that issue.

               >> Dawn Lynn:  Thank you.  Our next question, the trend

               towards defined contribution retirement seems to be

               accelerating.  Do you see regulations increasing in step

               to monitor and regulate the providers?

               >> Dr. Ferguson:  I hope so in the follow sense and I've

               seen this in a couple of states.  I haven't talked much

               about it but one of the states that's made a big change

               has been Rhode Island.  And what Rhode Island has done is

               create a hybrid plan and so I think this trend towards

               defined contribution can be dealt with if there are




               regulations such as the -- or advice and then maybe

               regulations so the TIAA advice about annuitization leading

               to regulations from the Department of Labor, for example,

               might be one way to do that.  Or if states -- states are

               one of the places where the move from DB to DC is

               occurring most rapidly.  Follow the models towards a

               hybrid plan as opposed to going to a pure DC plan.  So I

               think since a lot of this is happening at those levels

               that's where it can be done.  And then as I said the

               Department of Labor since it oversees Arista plans if it

               really pushes for more annuitization in the plan can help

               by that kind of regulation to create a hybrid plan that

               has both a DC element and then a DB element to it.

               >> Dawn Lynn:  Thank you.  Our next question, I have heard

               that low interest rates are forcing retirees into riskier

               investments.  Your comments.

               >> Dr. Ferguson:  Well, the answer is that it is true.

               Let me be a little clearer about it.  Low interest rates

               are forcing -- it's something -- everybody into, you know,

               riskier investments.  It's one of the reasons why we're

               seeing a rallying in the stock market.  It's one of the

               reasons perhaps why we're starting to see a pickup in

               housing.  But I would be a little cautious because then

               what happens when one says that is there's sort of a




               natural sense that -- well, that means we must have higher

               interest rates right away.  So recognize for those -- this

               is now getting the monetary policy issues so low interest

               rates do have the effect of driving everybody into riskier

               investments.  On the other hand, a reason I think that the

               Fed is engineering very low interest rates right now is to

               create sort of a cushion under the economy and so it's a

               tradeoff that they're making frankly.  Now what does that

               really mean?  I think the fact that we are currently

               having very low interest rates validates the importance of

               having a diversified portfolio.  Even as you get older,

               even as people get into retirement, there's still reason

               to have some equity exposure as well as fixed income

               exposure.  You know, I think people think, well, as I get

               older I -- you certainly want to move more towards fixed

               income, but having equity exposure even as you are in

               retirement gives you a chance to offset moments when you

               have low interest rates by having an increase in the

               equity values that you might have in your portfolio.  And

               so the real message out of all of this is because you

               cannot predict what the financial markets are going to

               throw at you during the course of retirement, it's still

               important to have a diversified portfolio.  There is a

               danger in being, even as one is retired, particularly if




               one is retired of overly conservative just as there is a

               danger in being, you know, sort of overly eager to take

               risk.  And this very low interest rate environment is sort

               of proof of the importance of having diversification as a

               way to deal with different kinds of economic environments.

               >> Dawn Lynn:  Thank you.  Our next question, bear with

               me, it's a little bit of a long one.  How much of the

               increase in the stock market over the past 30 years is

               attributable to the change from company pensions to IRAs

               forced entry into the stock market?  And as the population

               ages and begins withdrawals from these IRAs, how much of a

               decrease in stock market is likely to occur?

               >> Dr. Ferguson:  Okay.  Let me -- that's a great

               question.  Let me try to answer the second part partially

               because I don't know the answer to the first part

               [laughter].  So I should at least go where I think I know

               the answer.  So on the second issue there is, I think,

               what we on our study team, that NAS study think of as

               being a myth out there, that as baby boomers retire,

               they're going to dump their stocks and the stock market is

               going to collapse.  We think that's not the likely

               outcome.  And that there will be other forces that will

               drive equity markets but it's not going to be, you know,

               the aging of the baby boomer population.  The reason that




               we believe that is that equity markets in particular are

               really quite global.  Well, a number of things.  First, we

               don't believe based on the diversification I've just

               talked about that individuals are going to be sort of

               dumping their stocks.  They will be selling them gradually

               over time as they get older, but they'll still hold on to

               some as they diversify.  Secondly, even among older folks

               there are different risk profiles and so we shouldn't

               imagine that everyone is going to, you know, reach a

               certain age, you know, and start to act the same way.  The

               third is remember one of the things I've said is we may

               have to -- younger people and maybe in some sense all of

               us may have to increase savings so even as some folks are

               selling their stock in order to -- their equities in order

               to fund retirement, there will be other people, younger

               people, a smaller cohort but increasing the savings rate

               may offset some of that selloff, if you will.  And the

               final thing equity markets in particular are quite global.

               And as growth picks up around the world, even though they

               have demographic challenges, as the rest of the world

               becomes much more middle class as they are forced to save

               more and as they think about diversifying their portfolios

               and overcoming what Susan and other international

               economists call a home bias in investments, they will




               naturally look to the U.S. market as the deepest and most

               liquid.  And so I think this statement that equity markets

               are going to -- U.S. in particular be on a downward trend

               because of demographic is false.  It's a myth.  So the

               first part of the question I have to be very honest.  I

               honestly cannot tell you how much of the rise in equities

               was driven by the increased use of DC plans.  I'm not sure

               that anyone can really tell you that.  We can tell you the

               amount of equity that's being held in DC plans but how

               that drives pricing as all of you know depends on supply

               and demand dynamics that are global.  And so while this

               has been an interesting trend, just as I don't think that,

               you know, the aging of the population is going to lead to

               a huge selloff, it's hard for me to say that the big rally

               that we've seen in equities over the last period of time

               is being driven by aging populations.  In fact, as one

               thinks back on economic history, there have been, you

               know, lost decades in equity markets that are sort of

               inconsistent with the notion that aging baby boomers have

               been -- I'm sorry.  That young folks, baby boomers, aging

               through the population from the 60s to now have been

               leading to this sort of steady uptick in equity

               evaluations.  Because if you look at what happened to

               equities, there have been periods in the 70s where they




               were really flat; then they rallied; then they're flat;

               then they collapsed.  So it's all the behavior of the

               equity market's actually belies the notion that somehow or

               another it's demographics that really we're driving what's

               going on.  I think there are many other forces including

               policy forces and the other kinds of dynamics that drive

               markets and demographics, I think, was probably a

               relatively small part compared to other things.

               >> Dawn Lynn:  Thank you.  Next question, I worry that our

               children cannot save enough for retirement due to the

               skyrocketing costs of undergraduate education.  Your


               >> Dr. Ferguson:  I worry about it too.  You know I wish I

               had sort of a more insightful comment.  I think the issue,

               and I've talked to some people on various campuses about

               this, we really are going to have to rethink the financing

               model for higher ed.  And that question sort of takes me

               into that space.  Because just as I've talked about the

               threats of retirement not this campus -- this campus has

               actually been, I think, in better shape than many others.

               But we cannot continue to depend on, you know, 7,

               8 percent increases in tuition year after year after year

               in order to drive the higher ed model.  Frankly I think

               the higher ed model also is not going to be able to depend




               for research support from the government as much as they

               have in the past just because the general fiscal

               challenges that we confront.  There are a number of us who

               think about endowments and we're not quite sure that

               you're going to see double digit increases in endowments

               as well.  And so I think higher ed generally speaking, not

               any particular institution is going to have to really

               rethink it's financing model for lots of reasons.  And one

               of them is that young folks, our children, are not going

               to be able to afford the kinds of increases that we've

               thrown at them in higher ed space.  Now my impression

               based on conversations I've had on this campus is that the

               University of Michigan is actually starting to come to

               grips with this issue has started to think about sort of

               gradually keeping costs under control for sure.  I suspect

               that's not popular with everyone.  So I'm not getting into

               what other political dynamics on the campus may be.  But I

               think the point I'm making is that a well managed

               institution can think about a multi-year strategy for

               trying to gradually adjust its approaches including

               lightening up, if you will, on the big increases in

               tuition because I agree that our children or in some cases

               grandchildren will have a hard time affording the kinds of

               education that I did and folks in this room have had.




               >> Dawn Lynn:  Thank you.  We also have another question

               from Twitter.  How is the uncertainty in retirement

               planning likely to affect labor management bargaining in

               the near and midterm?

               >> Dr. Ferguson:  Yeah.  That's a great question.  I think

               we've actually already seen that to some degree.  Actually

               some of you, I doubt if any of you or many of you are

               football fans.  You know that one of the disputes that

               existed between NFL and the referees union was around

               moving to a 401K type plan.  And so we see that being

               very, very visible.  I think the reality is that this

               issue around retirement and retirement security is going

               to continue to be an important challenge in labor

               management relationships.  One of the reasons that I am so

               enamored of the hybrid model is that our experiences has

               been that it seems to be a middle ground that brings

               together labor and management.  Because it can create more

               certainty about what the employer is going to have to pay

               in by creating a DC type plan.  But a hybrid model that

               has an annuity or other kind of DB option creates some

               certainty about retirement outcomes and risk sharing for

               the employee.  And so, you know, I do think that these

               hybrid models that combine DB and DC are a good way to try

               to break through some of the natural tensions that exist




               or could exist around retirement security for management

               and labor and we've seen already, you know, that at the

               state level, local level etc. this has become a really hot


               >> Dawn Lynn:  Thank you.  And this is going to be our

               last question.  What are the effects of immigration policy

               on the retirement crisis?  Some have suggested that net

               immigration into the U.S. has to a certain extent made up

               for the declining birth rate.

               >> Dr. Ferguson:  It has to a certain extent because

               immigrants -- net immigration has tended to be somewhat

               younger than the existing population.  But one has to

               recognize that even immigrants start to get older, you

               know, no one's going to be perpetually young.  And so

               while it may at the margin be helpful, I'm not sure one

               should look at that as, you know, the core solution.  It

               is part of the solution space.  One of the reasons that we

               have a relatively younger population compared to Japan or

               China or other places is that immigration has helped us

               over time.  But, you know, that's once you get a stock of

               immigrants by definition they're going to age as well so

               you still have an aging population.  You may start from a

               slightly lower base which is one of the things that's

               helped us.  I don't want to go too far into immigration




               policy but one of the other things that our report says is

               that a solution to all of this, given the fact that we

               have a smaller cohort of younger people that will be

               supporting all of us aging baby boomers is that we have to

               create greater productivity in society.  And you know one

               can think about immigrant policy, immigration policy that

               can either be helpful in that regard or neutral in that

               regard.  And so I think the real issue around almost any

               policy has to do with refreshing the population has in

               part to do with how do we create much more productivity in

               society.  So it's not just around age.  It's also thinking

               about how you make those folks more productive.  Well,

               thank you all very, very much.  These have been great

               questions and I really have had a wonderful time here.

               And look forward to maybe returning to Ford School at some

               point in the future.  So thank you all very much.


               [ Applause ]


               >> Susan:  Thank you very much.  That was terrific.  It is

               really wonderful to be able to have such a clear and

               candid discussion of very important issues and we're

               particularly pleased to have this important topic

               addressed as part of our policy talk series.  So thank you




               very much.  I'd also like to thank John Ciorciari and Dawn

               Lynn Kaiser for framing the questions.  And in particular,

               our audience for pulling together such a wide range of

               very thoughtful questions that enabled us to expand the

               conversation this afternoon.  So thank you both to those

               who are here with us in the room and also to those who are

               watching online.  With that, let me ask you to help me end

               the session by giving a final thanks to Dr. Ferguson for

               his presentation.  Thank you very much.


               [ Applause ]