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BlackRock Releases National Retirement Survey



Secure Income Covers Three-Quarters of Expenses for Today’s Retirees, Helps Support Sense of Optimism, Safety; Yet, Waning Pensions Point to Growing Income Gap

How to Fill the Gap? Time in a Workplace Savings Plan Has Big Impact On Retirement Planning, Satisfaction – but Workers Want Secure Income Investment Options Too

Retirement System at a Crossroads: BlackRock Expert Says Secure Income Options Are a Company’s Key Fiduciary Responsibility

NEW YORK--(BUSINESS WIRE)--May. 3, 2012-- When it comes to enjoying life in retirement, the reality for current retirees is beating the expectations of current workers, according to a new survey released today by BlackRock, Inc. (NYSE: BLK).

The lifestyles of today’s retirees are continuing to draw considerable support from secure retirement income delivered by traditional pensions – an income source that will not be as widely available to future retirees.

At the same time, the poll shows, long-term participation in a workplace retirement savings plan like a 401(k) – now steadily replacing the traditional pension as the dominant corporate retirement offering – is also emerging as a key boost to well-being in retired life as well as effective retirement planning among current workers.

Those are among the key findings of groundbreaking nationwide polls of 1,035 retirees and 1,002 workers participating in workplace retirement savings plans, commissioned by BlackRock in March this year.

BlackRock also released today the findings from a third survey in which it asked more than 100 U.S. companies about their workplace savings plans, including whether workers in those plans will be ready to retire at the age of 65. A copy of those findings can be found at www.BlackRock.com/RetirementSurvey.

How today’s retirees are actually living outstrips what today’s workers are expecting according to several fundamental financial measures of retirement satisfaction.

Nearly two thirds (64 percent) of retirees strongly agree that their financial situation allows “having a ‘choice’ not to work anymore” – by contrast, just 37 percent of workers strongly expect that their finances will allow such a choice.

Retirees are doing better than current workers expect to do regarding “buying the things I want after paying for essentials” (46 percent vs. 37 percent) and “easily covering my medical costs” (43 percent vs. 28 percent).

Current retirees are also enjoying leisure and family time to a degree that workers don’t presently anticipate – for example, “spending time pursuing hobbies as much as I like” (47 percent vs. 30 percent), “spending time with my family as much as I like” (57 percent vs. 41 percent) and “pursuing leisure activities as much as I like” (44 percent vs. 31 percent).

Just over half (51 percent) of retirees – but only one quarter (25 percent) of today’s workers - are confident about having enough money to live comfortably in retirement.

“Though many of today’s retirees are successfully meeting the financial challenges of life post-employment, the reality is that most are enjoying the financial benefit of robust, secure income streams – in particular, defined benefit pensions - that future retirees simply won’t have,” said Chip Castille, Managing Director and head of BlackRock’s US & Canada Defined Contribution Group.

“Filling a growing income need as these traditional income sources steadily erode is perhaps the most urgent problem facing today’s corporate retirement system,” he said. “Encouragingly, our poll also found that, as traditional pensions wane, 401(k) and other workplace retirement savings plans are delivering significant support for both the prospect and the reality of retirement security and satisfaction.”

Paying for Retirement: A Global Problem

“Safeguarding financially secure retirements is the defining challenge of global society,” said Robert Fairbairn, Senior Managing Director and head of BlackRock’s Global Client Group. “In the next few years, according to United Nations forecasts, the over-60 age group will roughly triple in size, to 2 billion people – increasing at more than twice the rate of the population as a whole – even as the global workforce needed to support them shrinks. Living longer should be a blessing but many people are worried they won’t have the income they’ll need to support the retirements they envisage.”

“We face an unprecedented challenge: how to close the growing gap between the cost of living longer and our ability to finance it,” Castille added. “Yet, we believe we can do it, and defined contribution plans can play a vital role. But there is a lot more work to be done if these plans are to totally deliver on their considerable promise – particularly when it comes to delivering secure income to tomorrow’s retirees.”

Secure Income Vital – And Eroding

Secure income – which the poll defined as income from a defined benefit pension plan, Social Security or an annuity – plays a dominant role in meeting the financial needs of current retirees, the BlackRock poll shows.

Secure income covers 81 to 100 percent of monthly expenses for nearly six of 10 (58 percent) of retirees polled. Across all retirees, on average, secure income covers 76 percent of expenses.

Retirees who have more – rather than less – secure income from traditional sources are more likely to agree that their finances support optimism about retired life, a feeling their financial future is secure, and control of financial risk.

“For today’s retirees, secure income clearly creates a tangible ‘psychological’ as well as practical benefit, helping to support a sense of safety and security in addition to regularly covering a very large portion of their ongoing financial need,” Castille said.

Retirees generally agree (83 percent, and 39 percent strongly agree) that “secure income makes a bigger difference than I thought it would.” The larger the role of secure income in the retiree’s life, the more likely they are to agree that “it’s easier to meet all of my living expenses than I thought it would be.” These retirees are also more likely to disagree that “it’s more challenging financially than I thought it would be.”

Within the secure income category, a defined benefit (DB) pension is by far the most important income source, covering on average about 44 percent of monthly expenses. Social Security covers about 28 percent.

Yet, pensions are increasingly a thing of the past. About eight of 10 retirees polled report having pension income, but DB plans cover just 53 percent of the workers polled. The incidence of such plans drops dramatically in line with age, from 62 percent of surveyed workers age 55 to 59, to just 37 percent of workers age 25 to 34.

Defined Contribution (DC) Plans Make a Difference – But Need to Do Even More

An estimated 60 million U.S. workers are now enrolled in DC retirement plans1 – employer sponsored retirement savings plans funded by employee contributions deducted on a pre-tax basis from income. Assets under management in DC plans now total about $5 trillion2, fast approaching the amount of assets in traditional pension plans.

Long term participation in a DC plan has a big impact on sustaining many aspects of retirement security and satisfaction, for retirees and workers alike, the BlackRock poll shows. Six of 10 retirees who left work with 20 or more years in the DC system say they were confident when they retired that they would have enough money to live on, compared with just 42 percent of retirees with only five to 10 years in the system.

These longer tenured retirees also are more likely to agree that their finances “allow me to feel optimistic about life in retirement (62 percent vs. 37 percent) and “my financial risk in retirement is under control” (48 percent vs. 27 percent).

Participation in a DC plan also has a positive effect on the planning effectiveness of both retirees and workers.

Nearly two thirds (63 percent) of retirees who had 20 or more years in a DC plan agree that they have “a clear and specific plan on how to make my money last through retirement,” compared with just 39 percent of retirees in DC for five to 10 years. And nearly six of 10 retirees with more time in the DC system say their retirement planning has been very effective, compared with just 29 percent of those with less time.

Among workers, 87 percent of those with 20 or more years of participation say they have been effective at retirement planning, compared with 69 percent of those with less time.

“The benefits of participation in a DC plan – especially, the reinforcement of effective planning – clearly build over time,” Castille said. “We need to get employees into the DC system as early as possible, and do whatever helps to sustain their active engagement and build their retirement confidence with a program throughout their working years.”

Going forward, workers have big expectations for their DC plan: 48 percent expect their plan to be their number one source of monthly retirement income, compared with just 17 percent who expect a pension plan to fill that role.

Younger workers have even stronger expectations: about two thirds (63 percent) of workers age 25 to 34 expect their workplace savings plan to fill this primary income generating role, compared with just 32 percent of workers age 55 to 59.

Can Employment Help Fill the Income Gap?

For current retirees, employment income covers on average 5.24 percent of monthly expenses. Employment income, however, is relatively more critical for the youngest, “Baby Boomer” era retirees, those age 66 or younger - covering nearly 8 percent of monthly expenses – than it is for older retirees - covering nearly 3 percent of expenses.

Among current retirees, just 1 percent say they are working either full or part time because they “need to;” however, 15 percent of current workers anticipate having to do so.

“Though some future retirees are looking to employment to fill at least part of their income gap, it’s clear that workers really expect DC plans to address this need,” Castille said. “Plan sponsors should urgently consider what’s needed in terms of enhanced plan design and focused employee communication to deliver against this growing expectation.”

Call to Employers to Play an “Activist” Role

Workers and retirees generally agree – but retirees agree even more strongly – that employers sponsoring DC plans need to assume key responsibilities for workers’ retirement preparation, particularly regarding the delivery of secure retirement income.

Both current workers (72 percent) and retirees (91 percent) agree that plan sponsors should educate participants about the realities of longevity in retirement, but about twice as many retirees (54 percent) as workers (25 percent) strongly agree that employers should do this.

A little more than half (51 percent) of retirees strongly agree (94 percent agree) that plan sponsors should provide a secure stream of retirement income through their workplace plan; 41 percent of current participants strongly agree with this (89 percent agree).

“Now that they’re actually managing retirement’s financial issues first-hand, retirees are particularly keen to see employers take an activist role in helping workers get ready,” Castille said.

Both workers (85 percent) and retirees (79 percent) find appealing the idea of an investment fund that automatically converts to guaranteed retirement income, and both retirees (52 percent) and workers (53 percent) agree that they would benefit “a great deal” from having a guaranteed retirement income product in the workplace plan.

A Crossroads for DC – and the Future of Retirement

Plan sponsors are now faced with making some critical choices regarding essential elements of DC plan design, Castille believes.

“Current retirees are holding their own, but looking ahead, we can see crisis on the horizon regarding how retirees will sustain themselves financially in retirement,” he said. “We still need to bolster savings levels, and we also need to come to grips with a looming income gap and address ways to better connect to participants.”

Building financially secure retirements will remain a work in progress for years to come, and clearly many workers feel daunted by the challenges of planning and preparation.

Preserving secure retirement income is a critical piece of the puzzle. According to Castille, helping plan participants generate income has developed into an essential fiduciary responsibility that plan sponsors will fail to manage at their peril. “Just a few years ago, introducing income generating options into a DC plan in the absence of regulatory guidance was viewed as risky – akin to taking a big leap into the dark. Today, however, we believe that the much bigger risk is not to move on the income issue.”

As far-reaching social and economic factors continue to re-define retirement, demographic shifts make retirement income increasingly crucial – and the DC approach continues to evolve to meet new and emerging needs – the responsibilities of all the key parties in the “DC community” are coming into even sharper focus, Castille noted.

“Current workers need to take every opportunity to improve their planning and saving – and take lessons from what’s worked and what hasn’t for current retirees,” he said. “For their part, sponsors need to reflect deeply on emerging aspects of their responsibility, especially when it comes to income, and insist that plan providers help by delivering appropriate investment options and administrative systems.”

For more information on the BlackRock survey, please visit www.BlackRock.com/RetirementSurvey.

The surveys of 1,035 retirees and 1,002 workers were conducted on the Internet during March 2012 by Boston Research Group on behalf of BlackRock’s U.S. Defined Contribution business. BlackRock also polled 118 executives managing DC plans, in an Internet survey conducted during that same month.

All of the retirees and workers polled have had at least five years of participation in a workplace retirement savings plan. The samples of 1,035 retirees and 1,002 workers each have a maximum sampling error of +/- 3.1 percentage points at a 95 percent confidence level.

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At March 31, 2012, BlackRock’s AUM was $3.684 trillion. BlackRock offers products that span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of March 31, 2012, the firm has approximately 9,900 employees in 27 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia, and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com.

About BlackRock Defined Contribution

Retirement is harder than ever before. That’s why many of the world’s largest DC plans trust BlackRock with their participants' retirement futures. As an independent, global DC investment-only provider, BlackRock provides a breadth of capabilities and depth of knowledge across asset management, plan design, client engagement and participant communications. Our dedicated DC professionals work with plan sponsors, consultants and financial advisors to share the best thinking from across the globe and objective insights on the ever-evolving challenges of this new world. BlackRock aims to help you bring clarity to the most complex retirement plan objectives, so that together we can deliver the best possible outcomes for participants. For additional information, visit www.blackrock.com/dc.

About Boston Research Group

BRG is a strategic market research and consulting firm that specializes in the financial services and employee benefits industries. The firm conducts projects dealing with both strategic and tactical marketing issues, including loyalty and satisfaction, market segmentation, brand assessment, product development, sales processes, and distribution strategies. BRG focuses on applying market research information, collected and analyzed using qualitative and quantitative data collection techniques and methodologies, to provide solutions for marketing-related challenges. The firm has extensive experience studying DC participants, plan sponsors, retirement plan advisors, and search consultants. BRG has conducted the leading syndicated plan sponsor, participant and advisor studies since 2000. The BlackRock study was directed by BRG’s president, Warren Cormier, who is co-founder of the Behavioral Finance Forum along with Dr. Shlomo Benartzi, a pioneer in participant behavior.

1 Source: Cerulli

2 Source: Investment Company Institute (ICI)

The opinions expressed are as of May 3, 2012 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

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Source: BlackRock, Inc.

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