By SUSAN JONES
Roger Ferguson, CEO of TIAA, had some tips for faculty, staff and students during a visit to campus earlier this week. But, he said, they aren’t the simple tips that you find in business magazine, but ones that “reflect the complexity of people’s lives.”
TIAA, which is the retirement plan available to Pitt employees, is focused on the nonprofit sector, and Ferguson says, “People in this sector are much more confident about their retirement income.”
He cited studies his company has done that show a 70 to 80 percent rate among nonprofit employees, but only 50 percent in the for-profit world.
The company, which was started by Andrew Carnegie in 1918, now has 5 million clients and manages nearly $1.2 trillion in assets.
After speaking to students on Nov. 13 about retirement planning, Ferguson addressed faculty and staff on “Considerations When Writing Your Own Financial Story” at the University Club. Nearly 300 people had signed up for the seminar.
Ferguson broke his talk into three categories: Economic, technical and demographic trends; retirement challenges and steps to take for a secure retirement.
Economic, technical and demographic trends
“We all have aging populations,” Ferguson said, from higher life expectancies and lower fertility rates.
Because of this, in less than two decades, the U.S. will have more people over 65 than children. And millennials have surpassed baby boomers as the largest group in the workforce, which is “transforming the way we work and how we think about our employees at work.”
A worrisome trend is that household debt is at a record level of $13 trillion, Ferguson said, including $1.5 trillion in student debt. “And meanwhile, the personal savings rate remains far below long-term averages.”
Against this backdrop, he said, Americans are facing increased complexity in their financial lives.
There are more choices and more control for individuals, but there’s also been a shift to more personal financial responsibility with investing decisions in the hands of each person instead of investment professionals.
“One thing that hasn’t changed is the degree of financial literacy,” he said. “There is a woeful lack of knowledge around financial matters across society.”
“All Americans need to prepare for the fact that they might live longer than any previous generations,” Ferguson said.
More than half of the men and women who are 65 now will live past 85 and 90, respectively, he said. We’ll be spending more time in retirement that our grandparents, and many people have not saved for this new reality and might outlive their retirement funds.
Social Security and Medicare also are under increasing pressure.
“In the ‘50s, there were about 15 working age people for every retiree,” Ferguson said. “In the next five years or so, it’s estimated there will be two working-age individuals for every retiree.”
And looking further out, by 2034, the Social Security trust fund will be exhausted, which will mean Social Security will only pay out 75 percent of anticipated benefits. This is coupled with the rising health care expenses that almost everyone will encounter as they age.
So what’s to be done? Ferguson suggests three things that need to happen:
- Policymakers need to make Social Security and Medicare more sustainable.
- We all need to save more.
- Many will end up working longer.
Five tips for long-term financial security
Diversify your assets: “It’s a good way to manage financial risks,” Ferguson said. And he suggests that once a year, you should review your portfolio to make sure your asset allocation is in line with your tolerance for risk. You also should revisit your portfolio if you have a major life experience
Stay focused on the long term: All the information we’re being bombarded with is focused on the short-term. You need to know what your long-term goals are, which will help you stay the course during times of volatility. “You should not lose sleep over every up and down in the stock market,” he said.
Have a rainy day fund: Ferguson suggests that six months of basic expenses in a liquid fund is appropriate. This means you won’t be forced to sell other investments when the market is low to cover expenses.
Draw up a plan for the right use of guarantees: This means thinking about what you should do with your nest egg to create lifetime income. Ferguson suggests annuities are the best way to do this.
- Take full advantage of all the resources Pitt makes available to you for financial education and advice.
Two pointed questions were raised in the Q&A session following Ferguson’s speech.
One professor cited a New York Times article from last year that suggested that some TIAA advisors were pushing clients into unsuitable investments because of the higher fees associated with them.
Ferguson said the company is cooperating with the New York attorney general who is investigating this allegation, but in their in-house review, he said, has found, “This does not appear to be who we are and does not reflect what we stand for.”
Another person asked how TIAA is dealing with the risk of hacking. Ferguson said they have invested heavily in computer security and so far have not had any widespread incidents.
Susan Jones is editor of the University Times. Reach her at email@example.com or 412-648-4294.