Request for Proposals–A Literature Search on Two Related Retirement Topics: Retirement Replacement Ratios and Drawdown of Retirement Savings
- Background and Purpose
The current economic crisis has highlighted for many the urgency of issues surrounding retirement security and resources. For many years, retirement replacement ratios have been used as a benchmark measure to help retirees plan for their income and spending needs in retirement. Yet, the changing economic environment together with changing patterns of retirement have raised questions about their ongoing usefulness. With the growing absence of post-retirement medical coverage, increased reliance on 401(k) balances to fund needs, and the impact of inflation, are replacement ratios still an appropriate measure and benchmark? Furthermore, how should retirement savings in 401(k) balances and other sources be drawn down in the changing retirement landscape? And, what are today's best practices?
From a macro perspective, the retirement system includes a number of stakeholders:
- individuals who are concerned about their own security
- employers who sponsor plans
- advisors who help individuals implement informed decisions
- product providers and financial services firms which create and distribute appropriate products, and
- policymakers who are concerned with the public interest.
Employers want to understand what level of benefits their plans will deliver and they have been regular users of replacement ratios in the past. Individuals who are planning their own retirement have access to personal expense data and preferences, and more choices in thinking about what is the right benefit for them. Advisors need to clearly understand workers' and retirees' current and future income needs in order to recommend suitable courses of action. Financial services firms need to help advisors productively and profitably serve the soon-to-explode retiree middle market. Policymakers want to understand overall levels of benefit delivery. Replacement ratios can be used in plan design, policy making, and in personal retirement planning. Alternatives to replacement ratios may be suited for one of these uses but not necessarily all of them.
The purpose of this effort is to review recent literature related to retirement replacement ratios and the drawdown of retirement savings. The results will be used to create reference material that will inform retirement professionals and others on the current and historical uses of these ratios by various stakeholders, including their limitations and ongoing applicability as well as current approaches for the drawdown of savings. Alternative approaches for measuring benefit adequacy and setting targets for retirement resource adequacy should also be considered.
- Research Objective
The Pension Section's Research Team is seeking researchers to conduct a literature search of pertinent sources related to retirement replacement ratios and the drawdown of retirement savings. The scope of the review includes sources from both the U.S. and Canada. Sources to be reviewed should include both practitioner-focused and academic references. Anticipated sources include:
- Publications of major retirement research organizations
- Publications of actuarial and other professional organizations
- Publications of consulting firms
- Trade press
- Financial and retirement planning journals
- Retirement planning software documentation
- Financial and retirement planning journals
- Publications of academic and practitioner financial associations.
Proposals should clearly detail the expected sources that will be reviewed. To ensure relevancy, articles and other sources should have been published in the past decade and be applicable in today's retirement context. In other words, sources that contain outdated information are not of interest.
The primary deliverable from this effort will be a report that summarizes and integrates existing literature as well as provides commentary on the current state of the use of replacement ratios and approaches to the drawdown of savings. The report should include discussion on how future literature on these topics may change based on the current economic climate. The Pension Section Research Team expects to use the results of this effort to determine the feasibility of follow-up activities in this area including a possible survey on the approaches of the drawdown of retirement savings. In consideration of this use, the final report should include a discussion of any areas of current knowledge gaps or areas for future research.
The Researcher(s) will work closely with a Project Oversight Group (POG) that will be recruited to review research deliverables and provide management, oversight and direction for the project.
- Proposal
To facilitate the evaluation of proposals, the following information should also be submitted:
- Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
- An outline of the approach to be used. Details should be given regarding the manner in which appropriate published material will be identified and evaluated, search techniques to be used, collateral material to be consulted, and possible limitations of the review and analysis.
- Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
- A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions.
- Ideas regarding the form and distribution of the final report, both for immediate release and for permanent reference (e.g., submission to The Actuarial Practice Forum or other SOA publication).
- Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.
- Selection Process
The SOA's Pension Section Research Team is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the sponsoring committees will make the final decision. The SOA's Research Actuary will provide staff actuarial support.
- Questions
Any questions regarding this RFP should be directed by e–mail to: Steven Siegel, SOA Research Actuary at ssiegel@soa.org.
- Notification of Intention to Submit Proposal
If you intend to submit a proposal, please e-mail written notification by June 15, 2009 to Barb Scott at bscott@soa.org, SOA Research Administrator.
- Submission of Proposal
Please e–mail a copy of the proposal to: Barbara Scott.
Proposals must be received no later than July 15, 2009. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than August 15, 2009.
Note: Proposals are considered confidential and proprietary.
- Conditions
The Society of Actuaries reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available to proceed. The Society of Actuaries also reserves the right to redirect the project as is deemed advisable.
The Society of Actuaries intends to copyright and publish the results of this research. The research will be considered work–for–hire and all rights thereto belong to the Society of Actuaries. However, appropriate credit will be given to the Researcher(s).