What will happen when Baby Boomers start retiring?

USA Today had a series of articles about the retirement plans, health care and mortgage. (I found it on the SOA homepage).

Take notes on several things:

1. The Older Baby Boomers seem to accumulate more wealth for retirement thanks to cheaper housings, better retirement benefits and higher investment returns than the younger baby boomers.
2. To file the Social Security Benefit at age 62, instead of waiting til age 66, may not be the smartest idea due to the factor of longevity and taxes.

The Social Security Administration projects that the average retiree's "break-even" age for Social Security benefits is 77. A retiree who dies before then would have fared better by taking benefits at 62. Those who live past 77 would earn more by delaying benefits.

Retirees who take reduced benefits at 62 and live to 90 would lose $39,000 in benefits; those who live to 95 would give up $54,000, the SSA says.

3. There are $1.75 trillion of baby boomer's estimated assets in the 401(k) plans. And most of the retirement assets will come in lump sum. And generally, most people may be confused about what to invest with the money.

For some, receiving retirement money in one big pile can lull them into thinking they'll never run out.

"It's this whole money illusion game," says Jack VanDerhei, a business professor at Temple University. "Having $500,000 looks much bigger than somebody promising to pay you $50,000 (a year) for the rest of your life. You feel rich going into retirement."

Annuities = DIY Pensions

I read this WSJ article about introducing annuity products to 401(k) plans yesterday. By investing in the annuities, the employee will get regular monthly payments after retirement. The article weighted some pros and cons of getting annuities through a 401(k) plan and it also talked about different kinds of annuities- immediate, deferred, fixed and variable.

In the pension consulting world, the most popular topic is to figure out the next big thing after pension. I believe the 401(k) annuity product is a beginning of many investment products to come when the investment companies/banks/insurance companies are exploring other investment vehicles which offer a similar financial security as pensions.

So what's the next big thing after pension for pension consultants? (Hint: definitely it's not pension.) Though some people believe the favorable attitude of employers and younger employees towards Defined Contribution is cyclical, I don't think there's a come back for pension as the notion of life-time employment with one company becomes a fairy-tale.

Is the pension consulting a sunset industry? It will soon be if the pension consulting doesn't re-invent itself.

A Pension/Actuarial related article

A senior consultant asked everyone at work to read this article since it's closely related to our field. Perhaps you read this article already. For those who haven't read this article, The Risk Pool by Malcolm Gladwell, it's worth a read. Gladwell did a good job in explaining the beginning of the pension problems we are seeing on newspapers now and he's a good storyteller. It's hard to find an article which touches some actuarial related topic and is easy enough to read. Maybe now you know why I used to fall asleep (sometimes) in my actuarial classes or reading some pension regulations books now.