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How to Build Retirement Income That Lasts: Prudential's Phil Waldeck · C-Suite Perspectives

• 0:00
  I have in-laws and a parent who are in their 90s, so I see one side of
• 0:04
  it, and then I have kids in their 20s.
• 0:06
  My kids have heard that debate many times at the table, which is you
• 0:10
  need to be in at the beginning.
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  And I was very happy to see both their employers auto-enrolled them.
• 0:15
  And that's where I see where the psychology of this is so powerful, which
• 0:18
  is if you are hearing this message for decades and seeing your balance grow, in
• 0:24
  one sense, you take pride in the success that you're watching this balance grow.
• 0:29
  But another sense, you feel a sense of loss if you start to
• 0:33
  take it out and you see it go down as you are now in retirement.
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  And I think the art of this is to get the idea that this isn't
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  about a balance of success.
• 0:43
  It's about having a way in which you can draw down your retirement savings
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  into income that you won't outlive.
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  In today's conversation, we're gonna talk about the new retirement reality and
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  financial security in an age of longevity.
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  It's a lot of words but what it means is that we're living longer-- making
• 1:03
  great progress there-- but that's exposing issues in our retirement system.
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  So joining me today to talk about all this is Phil Waldeck, head of
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  businesses in the US at Prudential.
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  Phil, welcome.
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  Steve, thank you, and thanks to The Conference Board.
• 1:19
  Yeah.
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  It's apropos that we're having this conversation because we are in
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  National Retirement Security Month.
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  I presume that you didn't describe it that way.
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  It's some congressional designation, but it's a great initiative because
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  it's meant to highlight where we are in our retirement system and what
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  people should be thinking about, right?
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  Retirement security is one of the defining themes of our time, so this
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  month it's helpful to have focus on it.
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  As longevity is increasing, as you described, and as a significant population
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  moves into retirement, this matters more not only for the individual lives, but for
• 1:55
  our economy and for society more broadly.
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  This is becoming a bigger and bigger need in terms of getting it right.
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  Yeah, and here we are, the baby boomers are coming to the end of their careers.
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  This generation has been the pig through the python on every aspect,
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  because they're just so big.
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  Boomers are the ones that were born between 1946 and 1964.
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  But you also see the beginning of the next generation, which is Gen
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  X, are starting to retire too.
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  So you've got a couple of generations here, and people are living longer.
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  So you got a lot of people who are retired right now.
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  There will be 75 million people over the age of 65 by the
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  end of this decade in the US.
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  And at the same time, you described how you've got multi-generations.
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  You've got people in the middle that are the sandwich generation that
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  are navigating the lives of their children, often adult children,
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  and their parents, and taking care of their own retirement needs.
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  That's a lot of wants.
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  That's a lot, yeah.
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  You got elder care, you've got children, you got grandchildren, you're retired.
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  A lot of pressure on this generation, and hence, the subject, which
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  is retirement security, right?
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  Yes, and I would say there's pressure on our federal government and our
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  fiscal resilience, given the state of the economy in terms of the size of
• 3:08
  debt compared to our GDP, 100% of GDP.
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  The ability of the government to do more to help in that situation has some limits
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  given the scale of the obligations we already have and a need to secure those.
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  But increasingly, individuals and employers will have to do more
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  to make that system work better.
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  Yeah, it's really true.
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  The Conference Board has written a lot about this, where for over 40 trillion
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  dollars in debt is way over 100% debt to GDP, but we're running 2 trillion dollars
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  in deficit every single year, mostly because of Medicare and Social Security.
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  So that's putting even more pressure on the system as you have more
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  retirees going into all of that.
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  And servicing that debt, I'm sure, is increasingly
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  challenging as rates have risen.
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  And to the extent that rates are greater than your rate of growth, that's a
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  really tough squeeze play in terms of crowding out the rest of the budget.
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  So yes, getting Social Security and Medicare, that's job one, but being able
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  to do more than that in terms of the federal government, pretty challenging
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  when it comes to retirement security.
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  So in terms of what is the new reality, which is what you've
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  been talking about, it is this growing population in this group.
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  It's the cost of servicing it from a federal and a state standpoint.
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  But retirement funds are not returning as much and it's not as powerful
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  with inflation as high as it is.
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  So you've got declining buying power, all of this leading
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  to some level of insecurity.
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  And you don't have the structure that prior generations benefited from
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  in terms of number of people under defined benefit plans that solve that
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  collectively, and there's a reason why that became challenging for employers.
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  But the reality is that's less and less likely to be providing the answers for
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  employees who have workplace retirement in terms of defined contribution plans,
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  but it's not the same in terms of their resilience to the risks that they face.
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  So you've just completed a new survey just recently, the Retirement Pulse Survey,
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  looking at retirement savings and all.
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  Talk about some of the headlines from your survey.
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  I think the headline here, and this is the 28th year we've done this survey.
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  This survey's intended to identify financial, behavioral, and emotional
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  challenges that Americans face.
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  And right now we have what you just described, increasing longevity, a
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  cohort that is facing those challenges, and a need to get prepared to navigate
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  the uncertainty of retirement.
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  One of those uncertainties is how long will you live?
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  And because of that, people often lack confidence in terms of entering
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  retirement and the complexity of, gee, I built this account balance,
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  but now how do I draw it down?
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  Am I gonna take it out too fast and run out, or am I gonna take it down
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  too slow and live more modestly?
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  So there is a significant cohort that has been successful through the workplace
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  but that now is facing a new challenge in which they lack confidence and have
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  a level of fear that's not good for them individually and not good for our society.
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  You read, Phil, in the newspaper that this generation of retirees is
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  the wealthiest ever, and it makes it sound like they're eating caviar
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  every night or whatever it is.
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  But that's not everybody.
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  And there's a whole lot of people who are kinda living
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  paycheck to paycheck, as it were.
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  Yeah, so there's a few things going on.
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  On one hand, there has been great progress on building retirement savings.
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  That's been one of the successes over the last few decades in
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  terms of employer-based plans and where there are defaults,
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  auto-enrollment, auto-contribution, auto-allocation into investments.
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  So there is a segment of America that has done pretty good, meaning that's made real
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  progress and built up a lot of retirement assets at the workplace and in IRAs.
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  Then there is a group that doesn't have sufficient access, and they
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  are vulnerable, that we need to get into some version of auto savings.
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  And for those that were relatively successful, that have built these
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  balances, they're now paralyzed often in terms of what do I do?
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  How much do I draw down?
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  And they have what we call FORO rather than FOMO-- meaning fear of running
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  out rather than fear of missing out.
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  And even those that have been successful see that balance
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  and they're afraid to use it.
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  And that's not good for them individually and it's not good for the economy
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  overall in terms of spending and the dynamics that could otherwise occur.
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  Yeah, I had a grandmother that lived to be 99, and I asked her, I
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  said, " What wisdom do you wanna pass on?" And this was a few years ago.
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  She said, "Well, don't outlive your retirement savings."
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  Which she was joking.
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  She still had her sense of humor.
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  But it's not a joke for a lot of folks who really have run through it very quickly,
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  and particularly in high inflationary times, it's not covering the costs.
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  And I think they are right to be concerned, meaning if there is a longevity
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  pool of one where I've got to save for, is it 10 years or is it 30 years?
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  Is it 40 years?
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  That's a great variation in terms of how much do I need.
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  And if it's a large population, that's what pension plans do, that's what Social
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  Security does, that's what annuities do in terms of pooling longevity risk.
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  But if I'm an individual, I want to prepare for the worst.
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  And so your 99-year-old grandmother had some logic in what she was saying that
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  she appropriately didn't want to run out.
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  But the baby boomers have been told from the beginning of their adulthood, "Don't
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  count on Social Security 'cause there's, it's not gonna be around. You're gonna
• 8:30
  pay in your entire life and you're gonna get nothing out of it." It hasn't come to
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  fruition, but you can see in a very short period of time where that might happen.
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  And so it does mean that there's gonna be greater pressure from
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  a private standpoint and from a self-assurance standpoint on making
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  sure that people can cover their own.
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  Yeah, I would be astonished if our society let that happen.
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  I think we obviously-
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  But it could be means tested.
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  It could be means tested.
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  There could be a variety of solutions that could change Social Security.
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  But it is a great success in terms of protecting elderly against poverty.
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  But to the broader point, we are gonna be debating that over the next few years
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  knowing that the point with which there will be insufficient Social Security
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  funds to meet obligations that is coming, and it's not that far, 2032.
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  That will put this in the spotlight, and that will increase anxiety
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  for baby boomers and others which is, all right, what can I count
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  on and how do I protect myself?
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  And that's where I think having some portion of one's retirement capabilities
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  being protected lifetime income is an important dynamic, and that's part of what
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  the private sector, employers, financial institutions, insurers can be a part of.
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  And you think of this as a challenge, and we've been talking about it in
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  terms of the baby boomers, early Gen Xers, but if you're a Gen Z or even
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  a Gen Alpha, it might be even worse.
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  You really have to be thinking about retirement from the very
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  beginning of your adulthood.
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  Yes, and I have in-laws and a parent who are in their 90s, so I see one side of
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  it, and then I have kids in their 20s.
• 10:09
  My kids have heard that debate many times at the table, which is you
• 10:14
  need to be in at the beginning.
• 10:15
  And I was very happy to see both their employers auto-enrolled them.
• 10:19
  Both their employers have contribution escalation and auto
• 10:24
  allocation into target date funds.
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  Those are the types of solutions that work, and that's part of how you get
• 10:30
  that generation on the right track.
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  It also needs some version of auto income as a way in which they can safely
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  draw down and have pooled longevity, and I think that's the missing part
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  of that auto equation, either at the workplace or through individuals.
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  Yeah, so talk about that because one piece of it is collect the assets.
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  The other piece of it is make sure that the assets produce enough income so
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  that you can live year to year without depleting all those assets, right?
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  And that's where I see where the psychology of this is so powerful, which
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  is if you are hearing this message for decades and seeing your balance grow, in
• 11:08
  one sense, you take pride in the success that you're watching this balance grow.
• 11:14
  But another sense, you feel a sense of loss if you start to
• 11:17
  take it out and you see it go down as you are now in retirement.
• 11:22
  And I think the art of this is to get the idea that this isn't
• 11:26
  about a balance of success.
• 11:27
  It's about having a way in which you can draw down your retirement savings
• 11:33
  into income that you won't outlive.
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  And that's a mindset shift that can be helped at the workplace and in
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  other varieties of environments in which you start to see your balance
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  as an income stream, what it produces as opposed to just a balance.
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  And then there's the mix.
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  When you're more junior in your career or your lifetime actuarially, you
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  try to produce growth and then later on you try to reposition for income.
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  And this is something that Prudential are experts at.
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  Yes.
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  So I think yes, you do need both, and you're gonna need some element
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  of that growth into the decades that you may live after retirement.
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  So I'm not implying that 100% of somebody's balance should
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  suddenly be an income, but a portion of it is appropriate.
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  And communicating what that might produce in income along the way, every single
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  statement, every single communication, that's how you change the orientation
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  so it's not just about the balance and what does the balance accomplish for you.
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  , Phil, there used to be this magic thing.
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  You do X amount in equities, X amount in fixed and, yeah.
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  And that didn't work for about the last 10 or 20 years.
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  What do you do now?
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  I think there is uncertainty that people face, whether it's inflation, whether
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  it's health care costs, whether it's concerns about the economy, and that's
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  where diversification is valuable, where some version of protection is appropriate,
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  meaning having your basics covered.
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  And our survey demonstrates that people really value having their basics
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  covered so they then have the license to spend on things beyond their basics.
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  So I think some level of pooling of risks, both market risks and longevity
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  risk, is a helpful solution for people.
• 13:08
  Yeah, now risk is something else that your study looked at and there's
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  the risk you just talked about but there's also just risk in life.
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  Which is what you try to insure for.
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  There's risk of catastrophic loss.
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  There's risk of a market crash, which seems to happen, you know
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  more regularly than you'd like.
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  Financial crises.
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  But also personal issues like health issues that can deplete
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  your capital base, right?
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  So you've gotta balance all of that risk and backstop for it.
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  It's a very complex undertaking when you think about when I
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  referenced the pension plan before.
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  It took care of a lot of that for someone.
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  But I think that's why ultimately people need to be in early on
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  retirement savings, the autos.
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  People need a structure that gets them on the right path
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  that they could default out of.
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  And then they're gonna need advice and guidance on how to then move into
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  retirement and have a portion that's protected and a portion that's flexible,
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  both to either grow or to be used for larger exposures like long-term
• 14:09
  care or a big health care expense.
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  And that's why you need to have a balance of both income that's protected that
• 14:16
  you can't outlive but also an investment account that could be drawn on for the
• 14:21
  types of risks that you referenced.
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  Yeah, now what we were told coming up is save as much as humanly possible.
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  Put it away.
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  You don't know about the future and it's uncertain.
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  All that.
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  But now you hear the politicians saying people have too much.
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  There's no reason why you need more than whatever your favorite
• 14:37
  number is in an IRA, and we're gonna start seizing assets in the IRA.
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  You probably heard some of this as well.
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  And so the cynical people say why should I bother doing this when all
• 14:46
  the politicians are gonna take it away?
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  How do you respond to that?
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  I think that we've done a lot very well in terms of building the savings
• 14:54
  base and I think the security of those assets, I would have confidence that
• 14:59
  the existing retirement system, both individual and workplace, will be
• 15:03
  preserved and protected, in part because what we started our conversation on in
• 15:07
  terms of debt to GDP, the scale of the problem, and the efficiency that the
• 15:13
  economy gets when things are pooled.
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  It costs a lot more if every individual has to save to 100 as
• 15:19
  opposed to having the pooling of risk.
• 15:21
  I don't think the politicians will be tapping the piggy bank
• 15:24
  the way that you just described.
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  You never know, but that's the prevailing wisdom.
• 15:27
  Now, then you have the whole pre-tax versus post-tax debate about savings.
• 15:31
  You have a point of view on that?
• 15:33
  There are benefits to young people going the route of Roth
• 15:36
  and paying their taxes up front.
• 15:38
  So it depends on your age and your time horizon.
• 15:40
  And your tax rate.
• 15:41
  Exactly.
• 15:42
  Yeah.
• 15:42
  Yeah.
• 15:43
  And it's a balance and this is why if you don't have the expertise on your own, you
• 15:47
  really should seek the expertise, right?
• 15:49
  And that's another one of the themes that is emerging from our survey, which
• 15:53
  is roughly a quarter of people have advice-- which means three quarters
• 15:58
  don't-- and roughly a quarter of the people have a plan in terms of
• 16:03
  some sort of withdrawal strategy.
• 16:05
  And people need more advice, need more access to financial advisors,
• 16:09
  need that in a objective way that aligns with their interests.
• 16:13
  And it needs to happen at the workplace and outside of the workplace
• 16:16
  because these are complicated topics for people to navigate.
• 16:19
  How do you know who to trust?
• 16:20
  I have my own point of view on that but how do you advise people?
• 16:23
  'Cause you hear these stories about well, they're making their money on the churn.
• 16:27
  They're putting you in the kind of investment vehicles where it's good for
• 16:30
  them but it may not be good for you.
• 16:32
  Just give us some themes on what our listeners should look for.
• 16:35
  I think for most Americans, they have a lot of trust in their employer and the
• 16:39
  employer has fiduciary responsibilities for their workplace plans, and they're
• 16:44
  gonna want to do the right thing for their workers, and they'd wanna do so
• 16:47
  in a way that doesn't expose their firm.
• 16:49
  So I think whatever can be delivered via the workplace is
• 16:52
  a really effective platform.
• 16:54
  And having unbiased advice or guidance is valuable in that setting.
• 17:00
  You had talked a little bit about the responsibility of the employer.
• 17:03
  And some of that is legal.
• 17:04
  ERISA and another rule.
• 17:06
  We have a lot of listeners who are human capital professionals and C-Suite folks.
• 17:10
  It really is a different world, and the role of the employer and the trust in
• 17:15
  the employer is absolutely critical.
• 17:17
  So it's a benefit, but it's part of the whole relationship
• 17:20
  with your employees, right?
• 17:22
  Yes.
• 17:22
  Employers consistently care about their workforce.
• 17:25
  Now, they have business to run, so this is part of their economic model, but I
• 17:30
  think it is sincere that employers are doing and want to do the right thing.
• 17:35
  Ensure there's governance around what they do in terms
• 17:38
  of their fiduciary obligations.
• 17:40
  But employers are a real force for good in this system, and I think
• 17:44
  how we get policymakers, employers, financial providers, academics on
• 17:49
  the same page to help employers have the either legislative and/or
• 17:55
  regulatory support to do this properly.
• 17:58
  That's how we can get to a better place both for workplace plans, for
• 18:02
  communicating income, for making income solutions defaults that can be a part
• 18:08
  of a plan for a portion of the assets.
• 18:10
  But that role of the employer has been part of the success that has
• 18:15
  gotten us to where we are today.
• 18:17
  It is a frustration that we hear over and over again from CHROs that
• 18:21
  employees don't value the benefits component of their total rewards.
• 18:25
  They look at base salary 'cause they know they can count on that.
• 18:29
  They can see it in their paycheck, however frequently that is.
• 18:32
  Even an annual bonus, it's a black box.
• 18:35
  They don't count on it.
• 18:36
  It doesn't motivate employment.
• 18:38
  And so more and more you hear, "Gosh, I should just start getting rid of the
• 18:42
  benefits because there's the people aren't valuing them. They're job hopping
• 18:45
  based on getting a bump in the base when you've got all this huge amount of
• 18:51
  compensation that's really in the benefits side." How do you advise CHROs and other
• 18:56
  executives to to deal with this in a way that is salient to their employees?
• 19:03
  They will know their own workforce better than you or I will.
• 19:05
  Health care is probably the issue that is most challenging there.
• 19:09
  It costs more than employees think, and that is squeezing the
• 19:13
  employers more and more given the rate of health care inflation.
• 19:17
  But I think ultimately, this is part of the glue that sticks
• 19:21
  with employees, particularly when we have economic downturns and
• 19:25
  periods of stress in the economy.
• 19:27
  I think this is part of the value proposition that gets long-term
• 19:31
  stickiness, which is valuable for employers given the cost of turnover.
• 19:35
  Yeah.
• 19:35
  Now, we're in the US, we're not in Europe, but you read about
• 19:38
  the UK system where they've lengthened the retirement age to 68.
• 19:42
  At the same time, you've got France at 62 and rioting when they try
• 19:46
  to move it up by a day or two.
• 19:48
  It's really remarkable.
• 19:50
  And you have some of that debate still here in the US, and you have
• 19:53
  people who say, "Oh, I can't wait, I'm gonna retire at 55." Shouldn't
• 19:56
  people be thinking about keeping the income stream going longer as well?
• 20:00
  There's a variety of reasons as an individual, as an employer, and
• 20:04
  as society, where it is beneficial to have people working longer.
• 20:08
  We're gonna have that demographic upside-down pyramid, lots of baby
• 20:12
  boomers, not that many workers, harder for the economy to grow and harder for
• 20:16
  those workers to support this system.
• 20:19
  But we recently sponsored a survey earlier this year with the Global Aging
• 20:22
  Institute that looked at five different countries-- UK, US, Japan, Netherlands,
• 20:28
  and Australia-- and the US has a voluntary system where employers choose
• 20:33
  to offer plans, so we have to make it attractive to employers to wanna do so.
• 20:37
  And I think that's part of the balancing act.
• 20:40
  Sure, if you could just mandate outcomes that would create results
• 20:45
  on paper, but politically that wouldn't work in our society.
• 20:49
  So this voluntary system that we have has done a lot really well.
• 20:52
  The increase in coverage, the effectiveness at building those
• 20:57
  balances that we discussed earlier.
• 20:59
  But I think if you're potentially gonna have a 30 or even 40-year
• 21:03
  retirement, that age 55 retiree doesn't make a lot of sense.
• 21:07
  Yeah.
• 21:08
  Now you mentioned AI a little earlier.
• 21:10
  Is AI really gonna be a helpful tool to individuals through this
• 21:14
  process and/or is it gonna be helpful to employers in this process as
• 21:19
  well, or is it still a lot of hype?
• 21:22
  I think it ultimately will be helpful to individuals and to employers.
• 21:25
  You know, what activity did you take in the last week in which you purchased
• 21:29
  something where you started with AI?
• 21:31
  Probably the way you used to Google it, now you use an AI engine.
• 21:34
  When you approach that interaction, you've got some foundation of knowledge.
• 21:39
  When you go to the doctor, etc., people are tapping it
• 21:42
  as a way to get up to speed.
• 21:45
  Employers will do that, individuals will do that, and in this space that has great
• 21:49
  opportunity to make things more effective and cost efficiently effective that has an
• 21:55
  opportunity, and I think that can be good.
• 21:56
  And you would think that individuals would be able to put in enough information
• 22:00
  about where they are in their life, what their income level is, what their asset
• 22:04
  base is, what their plans are, and do scenario planning essentially and you
• 22:09
  still are relying on actuarial data.
• 22:12
  Nobody knows how long they're gonna live and what their needs are but it ought
• 22:15
  to be pretty instructive in terms of, "Hey, this is how much you gotta save.
• 22:19
  Here's how you should be thinking about it," all the things you talked about in
• 22:22
  order to get to the end successfully.
• 22:24
  Yes, and I think individuals will do this, companies will do this for their
• 22:27
  workplace plans, and advisors that are advising those individuals inside and
• 22:32
  outside of the workplace, those advisors have their own AI engines that are helping
• 22:37
  them be more efficient and effective.
• 22:39
  In our survey we identify that individuals want the AI engine
• 22:43
  and they want the human advice.
• 22:45
  So I think it's gonna be an and, not an or.
• 22:48
  Yeah.
• 22:48
  It's really important 'cause you can't just turn this thing over
• 22:51
  to a tool that doesn't have an overlay of human judgment on it.
• 22:55
  Yeah.
• 22:56
  There obviously has to be a regulatory overlay here to make sure it's
• 22:58
  done right, and there needs to be human judgment to help people.
• 23:02
  And sometimes it is helping people know what they need to do and actually do it.
• 23:08
  The challenge often is one of access, where people need access to that extra
• 23:13
  coaching and discipline to get it done because left to their own devices they
• 23:19
  often avoid complicated decisions.
• 23:21
  And when you avoid things associated with retirement, time is not your friend.
• 23:25
  Starting early, getting it in place right, is way better if you do it
• 23:30
  early, including these income solutions.
• 23:32
  Any final thoughts here that we haven't covered or any other insights from your
• 23:36
  survey that you wanna share with people?
• 23:37
  I think I would ask employers to take the next stage in terms of making sure
• 23:43
  income is understood and visible in terms of translating those balances.
• 23:48
  Work to have income solutions in your plan, and then if I'm an
• 23:51
  individual, you need to build a plan.
• 23:54
  And that means use the tools from your workplace and individually to
• 23:59
  understand how to build this plan, including a withdrawal strategy.
• 24:03
  And then I think probably for everybody, we need to support policy that makes
• 24:07
  this more likely to happen, which is why I keep hammering on the default
• 24:11
  aspect of it 'cause I think that's how we get better outcomes as a society.
• 24:14
  And the reason for a National Retirement Security Month, which we're in,
• 24:18
  is to raise awareness of this and really give permission and remind
• 24:22
  employers that you need to do a little education here for your employees
• 24:26
  about the importance of all of this.
• 24:28
  Exactly, Steve.
• 24:29
  There is a whole generation of people that are approaching retirement
• 24:32
  or just starting retirement that have been savers, and how do you
• 24:36
  turn them into effective spenders?
• 24:39
  That's a very different dynamic for this next stage of their life.
• 24:43
  Phil Waldeck from Prudential, thanks for being with us today.
• 24:46
  Great pleasure.
• 24:47
  Thank you, Steve.