 I'm Susan Collins, the Joan and Sanford Weill Dean here at the Gerald R. Ford School of Public Policy, and I'm delighted to have you with us this afternoon. On behalf of the Ford School community, it's a real pleasure to welcome you for another in our series of distinguished lectures, the policy talks at the Ford School. This afternoon, we are very honored and very pleased to have with us Dr. Roger Ferguson, who is President and Chief Executive Officer of TIA-CREF. You'll find a biography in your program, and I'm not going to give all of the details, but I think as you take a look at it, you will be very struck, like I have been, by just how varied his career has been. He has reached the highest levels in an incredibly wide range of policy areas, and just to highlight a few, he has served as Vice Chair at the Federal Reserve Board of Governors. He is a member of President Obama's Council on Jobs and Competitiveness. He's a lawyer by training, and at one time was a partner at McKinsey & Company. He shaped policy from the private as well as nonprofit sectors as head of financial services for Swiss Rea, and on the board of a number of nonprofits, and of course now in his current role as CEO of a Fortune 100 provider of retirement services. I first met Roger when he was a PhD student in economics at Harvard, and I was an undergraduate economics major, and he was a very thoughtful and supportive colleague then, and has been ever since. And so I and many others in the profession are very grateful to him for that. This past year, he co-chaired a National Academy of Sciences panel on which I was a member. That panel was convened by the United States Congress to examine some of the same issues that he will focus on in his remarks this afternoon. What are the long-term economic implications of an aging population? Can our government maintain current levels of publicly funded support for older people? What are the trends in retirement ages and the prospects for people working longer? And what are the levels of personal savings today that are necessary in order to maintain current living standards in retirement for a range of economic scenarios? These are very important and challenging questions. The panel actually released its findings just two days ago, and you might have seen some of the press coverage from the briefing that Roger and his co-chair gave. Again it's very important information for all of us to understand and grappled with, and so we're so pleased today to be able to welcome Dr. Ferguson to share his views about it. He's been very generous already with his time today, meeting with students and faculty, as well as delivering this public lecture. And he's graciously agreed to take questions after his remarks. And so from the audience, just before five o'clock, we will be collecting cards, and so we invite you to write questions that you might have, and we will pick them up a little bit later in the afternoon. Mr. John Turchari of the Ford School faculty will help to select questions from the cards, or from Twitter. We invite questions from Twitter as well. And along with one of our graduate students, Don Lynn Kacer, who will be actually asking the questions this afternoon. And so with that, it is my honor and great pleasure to invite Dr. Ferguson to the podium. Thank you very much for that kind introduction, and let me be the first to say that it's really a pleasure for me to be here at the Ford School. I want to thank Susan Collins for inviting me. I want to take a moment and recognize a couple of friends in the audience, Marina Whitman and her husband, Bob, are back there. So I want to say hello to you, and nice to see all of you. And it's really a pleasure for me to be here, in part because my linkage to the school goes back to the original dean, Ned Gramlich, who served with me on the Board of Governors at the Federal Reserve. And I counted as a friend for many, many years. And finally, and most importantly, I must say being in Amar is important because you get to go to Comet Coffee, which is an important stop in America, as all of you know. So it is a pleasure for me to be here. And I will say that one of the great things about the Ford School is that in educating tomorrow's leaders and also conducting research, this school embodies a hope for a better tomorrow. And we're counting on all of you to help us get through some of the pressing problems that I'm going to be describing, and we'll talk about in the Q&A session. So today, I want to take a look at one of the more profound challenges that we are facing as a nation, and that's the issue of retirement or more accurately how to ensure safe and secure retirement for everyone in America in the 21st century, at a time when we have both great demographic and economic changes and challenges. Retirement is an issue that's sort of natural for TI craft, as many of you may know, because we are the leading provider of retirement services in the higher ed space and the not-for-profit space in general, and in fact, we were founded over 94 years ago to provide safe and secure retirement for college professors. Another great reason for me to be here, another honor for me in being here, is that in fact, the University of Michigan was the first school to sign up with TI craft back in 1919. And so we have a special relationship with this institution. So how things evolved for us? Well, today we serve 3.7 million people nationwide, not just in the academy, but also in research, medical, and cultural communities. We now do more than just retirement, even though that's our core, and overall our mission to provide financial security and well-being is unchanged. So we've watched with alarm as retirement has become a source of increasing angst across our nation. Americans' confidence about achieving a comfortable retirement has hit record lows in the face of factors such as a 2008 financial crisis, the shift from a defined benefit or DB plans to defined contribution or DC plans, the aging of the population, the explosion in health care costs, and all that adds up to some uncertainty about the future of social security, Medicare, and Medicaid. And then many of us recognize that the personal savings rate for many Americans and for America overall has been abysmally low for some time. So it therefore concerns us that most workers, foremost workers, retirement has become much more of a do-it-yourself activity, even as far too many of our citizens lack financial literacy skills to make the sound decisions about savings and investment and retirement that they're being called upon to make. So we at TI craft have been speaking out about the need for a new retirement system, one that fits the realities of the 21st century. We've also worked to highlight the need for greater financial literacy. But clearly, there's much more work to be done. So let me quote just a few statistics. Just 14% of Americans said that they are, quote, very confident that they will have enough money for a comfortable retirement. That's in the most recent Employee Benefits Research Institute study on retirement readiness. That same study indicated that 60% of Americans say they have less than $25,000 of retirement savings. And then according to a recent Gallup survey, 66% of Americans said that their top financial concern is not having enough money for retirement. The need for actions only become clearer based on the work that Susan Collins and I and many others did as part of our National Academy of Sciences study. And as she indicated, we just released that study on Tuesday, and I'll talk about that a bit more in a minute, but it underscores the urgency of responding to the challenges of retirement that we're talking about. So what I'd like to do in my talk today is look at three or four different things. First, I want to talk about the issues, the broad macro issues that underlay the retirement landscape. I'm going to talk a little bit about the potential solutions that might emerge over time. And then obviously I want to open up and leave plenty of time for questions and answers. So let me talk first about the issues that underlie any discussion about retirement, and that is the issue of the aging of the American population. So the committee that Susan referenced was founded, was started in 2010 to look at that issue and the macro economic effects of an aging population. And the goal was to provide a factual foundation as policymakers, particularly in Congress, think about and debate issues such as deficit reduction, Medicare, and social security. The starting point for the study, and obviously one of the major kicking off points for any discussion of retirement, is the demographic shift that's now underway in which Americans age 65 and older make up an increasingly large percentage of the population. In fact, people 85 and above are now the fastest growing segment of America. And this is the result of two trends, first being the rise in the average life expectancy in the U.S. Today, men can expect to live to be 76, women to 81. 50 years ago, the life expectancy was just 67 for men and 73 for women. The second trend that doesn't get much discussed is the declining fertility rate. Today, there are 2.1 births per woman compared to 3.7 births per woman in 1957 at the height of the baby bone. So together, these two trends are what's driving our aging population. It's not just about the baby boom generation, although the entry of baby boomers into retirement has certainly shined a spotlight on this phenomenon. It's more than the baby boomers, though. It's also the other cohorts that are smaller, just as the largest baby boom population moves towards retirement. The second big story is that aging and the aging population is not just an American story. By mid-century, many developing nations will catch up to the developed world in terms of old age dependency ratio. That's the number of elderly people as a share of the working age population. That's remarkable considering that when I was in graduate school and Susan was an undergraduate, countries like China, South Korea, and Mexico were struggling just to feed their own people. And now, as all of you know, particularly in China, because of the one-child policy, they have a rapidly aging population as well. The upshot of all this is that there are fewer and fewer people working, and they're supporting more and more people who are getting to an age that we consider retirement age. And that's obviously a recipe for big fiscal challenges. So our committee looked at what these trends, both in the US and globally, will mean for the US economy in the future. And obviously, in the US economy, the real challenge is the threat to health and the stability of social security, Medicare, and Medicaid. Together, the cost of these three programs currently amounts to roughly 40% of all federal spending and 10% of the nation's GDP. And we're already well aware of some of the challenges that the system is undergoing. Just a few months ago, the trustees of Social Security projected that the combined trust funds will be exhausted by 2033, three years sooner than projected just last year. They also reported that the ratio of workers paying taxes per Social Security benefit or beneficiary will hit 2.8 workers per beneficiary this year. That's down from 3.4 workers per beneficiary 20 in 2000, so 12 years ago. So our report seeks to clarify the issues that are relevant to policymakers and to suggest some potential options that they may want to consider. And we do believe, and there's some positive news here, that sound policies can, in fact, mitigate the negative effects that we're going to be confronting here. And that those policies will have to be a combination of four different policy levers, if you will. One is the major structural changes to Social Security, Medicare, and Medicaid. Secondly, a higher savings rate during working years. Third, the possibility for many of us of longer working lives. And fourth, the need to find greater revenue, which, frankly, means having to raise taxes in order to pay for some of this. The other thing that we focused on is that individual workers must be better prepared for retirement by planning ahead and by adapting their saving and spending habits. So we therefore emphasize something that's unusual in this kind of report, which is the need to take action sooner rather than later. The longer our nation delays in making needed changes, the larger will be what we call the legacy liability that will be passed on to future generations. And the larger the increase we'll need to make in terms of taxes on the future workers, and frankly, if we don't act soon, the larger the reductions of benefits will be called for for future retirees. So it's imperative that we act now. We'll have more options, and the cost of acting will be lower now than if we delay. Our report also emphasizes that financial literacy has become an even more crucial issue in light of these challenges. We know that people who are not financially literate will have a much tougher time preparing themselves for the financially secure retirement that everyone wants, particularly in an environment in which there is so much uncertainty about Social Security, Medicare, and Medicaid, and in which Americans have greater responsibility for their retirements. But sadly, our nation is seriously under-informed when it comes to financial literacy. A research by two professors, Anna Maria Lassardi, who was at Dartmouth, I think, has now moved to George Washington University and Olivia Mitchell of the University of Pennsylvania, both of whom, by the way, are fellows at the TI-CREF Institute, our research group. So Anna Maria Lassardi and Olivia Mitchell have shown just how unprepared many Americans are to make sound savings and investment choices. In their study of people over 50, only one third of respondents were able to correctly answer three basic questions having to do with interest rates, the effects of inflation, and the concept of risk diversification. My company obviously cares deeply about financial literacy because research has shown that financial literacy has a profoundly important effect on achieving retirement security. People with a high degree of financial literacy are more likely to plan for retirement and then, in turn, those who plan for retirement are more likely to have better outcomes. Planning for retirement is a powerful predictor of wealth accumulation. In fact, people planned for retirement have more than double the wealth of people who do not plan. And conversely, people with lower financial literacy tend to borrow more, they accumulate less wealth, and they tend to select financial products with higher fees. Folks with less financial literacy are also less likely to invest in stocks. They're more likely to experience difficulty with debt, including bankruptcy. And they're less likely to know the terms of their mortgages and other loans that they may have outstanding. So the lack of financial literacy is certainly a broad issue in America. But when it viewed through the prism of race, the effects are even greatly magnified. Minorities, along with women, and the least affluent, have some of the lowest financial literacy rates in the country. So it's not surprising when it comes to saving for retirement that studies have found serious gaps in the preparedness of African-Americans and Hispanic workers. And the overall problem is likely to become worse. There was a recent survey from the Financial Industry Regulatory Authority, or FINRA, that found that young Americans were less likely to be financially capable than older Americans. And the latest Jumpstart Coalition survey of high school seniors show that the financial literacy of high school students has fallen to the lowest level ever. Now that's hardly surprising, since 26 states have no financial literacy requirements at all in their K to 12 education systems. And only four states mandate that students take a personal finance class in high school. I will say, in this score, there's some potentially encouraging information. The National Conference of State Legislatures reported that this year, seven states have enacted legislation or passed resolutions promoting financial literacy. And in 28 states, such measures have either been introduced or are pending consideration. So it's hardening that the nation is starting to turn to this crisis of financial literacy. And obviously, I hope that our NAS study will help drive that further. So let me now turn to some of the changes that we are confronting or challenging confronting in funding retirement and how that's combined with the demographic and economic issues I've just talked about. All of you probably know that once upon a time, we talked about a three-legged stool as an analogy for understanding the retirement system. The three legs were pensions, social security, and personal savings. And today, all three legs are a little wobbly. Pensions have become a thing of the past for most Americans in the private sector. And the public sector headlines clearly indicate that states and municipalities are confronting a crisis of epic proportions and unfunded pension liabilities. As I mentioned already, social security is in trouble as the trustees have attested. And it will soon begin paying out more than it takes in. And the US personal savings rate has been completely inadequate for many years now, even dropping to negative numbers back when I was on the Federal Reserve. So given the scenario, it should be no surprise that Americans are less confident than ever about the ability to afford a comfortable retirement. People are also expecting to work longer and longer. A recent survey found that 37% of people said they expected to work past 65. And that's tripled the percentage of 20 years ago. So how do we get to this point of such uncertainty about the three-legged stool? Well, first, we've seen the demise of traditional pension plans in the private sector over the past 30 years. These traditional pensions are known as DB or defined benefit plans. And in the old days, you'd work for a company for many years, maybe for life. And when you retired, along with a gold watch, you'd get a monthly retirement check. Importantly, the size of the check that you would receive under DB plan had nothing to do with investment returns and may have had nothing to do with your salary. Rather, it was based on service and age and every once in a while also earnings. As recently as 30 years ago, 84% of private sector workers had access to this kind of DB plan. As of 2008, only 33%. So from 84 down to 33% in the private sector have access to a DB plan of that type. Today, what's happened is the defined contribution plan, particularly the 401k, has become the primary means of saving for retirement in the private sector. But the 401k and other DC plans don't guarantee workers a specific retirement check amount. Rather, as all of you know, they are vehicles that enable employees to save for their own retirement. And in many cases, employers contribute as well. But the kind of retirement check that a worker ends up with depends on the combination of contributions made and investment returns earned during their working lives. Importantly, and people forget this because things have changed so much, but 401ks were never intended to play the role that they do today. They were never intended to be the core retirement system. They were meant to be a supplemental retirement system to top up traditional DB plans. And that's the fundamental problem with the new model. Whereas once employers shoulder the responsibility and risks of funding retirement, today it's the workers who must bear that burden. And workers who, in many cases, as I've indicated, have no formal education or training in investing or have no financial literacy. And they're called upon to make these very important decisions. Moreover, there's ample evidence that a 401k-based model in the private sector really is not doing the job in other ways. Many eligible workers don't participate. Many employers and employees don't contribute enough. Many employees don't implement an appropriate asset allocation. And finally, and most troublesome, many employees do not hold on to their retirement savings. Instead, they crack into their retirement nest egg to fund living expenses. So in light of all these kinds of challenges, it is not surprising that McKinsey and company, the consulting firm, found that the average American couple will be some $250,000 short of what they need to retire securely. Another problem with the current model is that people tend to get caught up in the sides of their account balances without really thinking about or having much knowledge about the income flow that will be required in retirement. In fact, and this is hard for many people to gather, because of increased longevity, many folks will need to fund retirement that can stretch 20, 30, or maybe even 40 years. So the challenge that people are facing is managing longevity and managing longevity in which many of us will be living with chronic illnesses. So in this new model, people need to see their savings not just as a pot of money, but have to understand what the income stream is that's gonna be associated with that pot of money. So clearly the current model needs reform. But to be quite balanced in this, there are some positive aspects of a 401k model. First, it's an individualized system. So that's something that people really care about and enjoy. Secondly, a 401k system is more aligned with the way people work these days because individuals move around from job to job and do not work for a lifetime in one place. Nevertheless, these fundamental problems do remain. So that's the private sector so far not so good. Let's look to the public sector and I would say they're facing some equally challenging issues around retirement. Their defined benefit plans do remain the dominant model with nearly 80% of employees having this type of plan. But all of you know from reading the headlines that states and municipalities are struggling with large gaps between promised retirement benefits and current assets. And it's been estimated that the unfunded liabilities in the state and local pension systems have reached an astounding $4 trillion. And now many government entities have been working on this and have been making changes in their plans. And over the past two years, 39 states have enacted some form of a revision, including things like requiring employees to contribute more, tightening eligibility rules and modifying how benefits are calculated. So it's clear that in the public sector, we need to bring some approaches that will bring greater clarity and cost certainly to employers while also bringing greater retirement security to workers. So you can imagine that we at TI-CREF recognizing these challenges spent a lot of time thinking about these issues and trying to figure out what it would take to create a retirement system for the 21st century. So what would a retirement system for the 21st century look like? First, it would continue to recognize that helping employees achieve financial security and retirement is a shared responsibility between employers and employees. So the risk shifting that's going on would end up in a middle place where both employers and employees have a responsibility. Secondly, a retirement system for the 21st century would provide an income that can last a lifetime, as I've indicated 20, 30, maybe 40 years in retirement. I haven't talked much about it, but such a system would help employees to deal with healthcare expenses, which loom as a very large financial burden as people live longer and as I said with chronic illnesses. The fourth element of a retirement system for the 21st century would be that it would not really be one size fits all, given the demographic and other challenges and changes in society. Such a system would have to be sustainable, dealing with baby boomers, the 80 million of us who are gonna be retiring over the next several decades. And importantly, it would include a strong dose of education and communication and advice, recognizing that most people bearing a great responsibility and not having enough financial literacy are gonna need some assistance in making these tough decisions. One model that's working well, and therefore can, I believe, inform national thinking, and certainly inform our thinking, is the one that works in higher education, I believe, and wouldn't surprise you, I suspect, being the COTI craft. We are the leading provider of that kind of service. And there are a number of things that I think stand out for the system that we have in higher ed that might be appropriate at a national level. First, most of them feature mandatory participation, and so an automatic enrollment might be a feature over a time of system for the 21st century. Secondly, employees must have the right mix of investment options that can help them build the kind of saving that they need, and the mix of options needs to be optimally decided, not too many choices, not too few choices. A third thing that we've seen is, in the academic sector, as you know, the notion of preparing for retirement still is a joint responsibility with employees and institutions both contributing. And finally, employees typically have access to either a DB plan or an annuity option that provides a level of guaranteed income in retirement. And then, of course, the important issue of education and advice is an important part of what we provide in our model. And we believe that the model is working, and in fact, our participants tell us that. In a recent survey by the T.I. Creff Institute, we found that 75% of higher ed workers are confident that they will have enough money to live comfortably in retirement, and that compares with just 49% of all U.S. workers, so 75% versus 49%. So it's clear that one of the most pressing issues then is to move people into a system that provides for lifetime income. And that's essentially making available financial security for everybody. This is a particularly important issue now, if I can think about one other segment, and then wrap up here. This is the issue of financial security for lifetime. It's quite important for everybody, but it's particularly important for women. And that is because women often end up with a nest egg that is half the size of a man of the same age and occupation. And that's for a couple of reasons. One is women still earn about 77 to 81 cents for every dollar that a man may make, and they often spend an average of 10 to 12 years out of the workforce caring for children or elderly parents. Yet women, as I've already said, also live longer than men, and therefore they have to support themselves through a long retirement with what might be a smaller nest egg. And so the bottom line for both sexes is how do we ensure that people's primary savings vehicle is a DC plan can convert their savings into an adequate and secure income that lasts as long as they do? And here the answer will not surprise you is anointization. There was a recent report by the Government Accountability Office last year that encouraged anointization as an important means for addressing the issue of a lifetime income. And in that scenario, people who are retiring, purchase, take part of their savings to purchase an anointing to deal with their basic lifetime income for the rest of their lives. But the report noted that while anointing is probably a smart choice for many Americans, just 6% of those in a defined contribution plan chose or purchased an anointing at retirement. The other thing that this report noted is that many people took social security benefits before the full retiring age, therefore passing out the opportunity for higher benefit levels and additional lifetime income. So the report found a big disconnect, this GAO report, between what experts recommend and what people do. Because experts recommend that retirees convert a portion of their savings into an income annuity to cover necessary expenses. And they recommended that people have an annuity instead of a life lump sum withdrawal. And experts also recommended that you delay taking social security until reaching at least four retirement ages and in some cases continued work and save past four retirement age. So there are clearly some important implications that the GAO study has found, which is that while experts have a sense of what folks should do, very few of our citizens outside of the higher ed space are doing it. So let me close now by just summarizing all the things that I've said here. First, talk about the aging population and recognition that that is a global problem. That clearly presents a number of macroeconomic challenges to our nation, particularly for programs like social security, Medicare and Medicaid. But I also said that policy options do exist and implementing those policy options sooner rather than later can start to at least mitigate, not reverse, but at least mitigate some of the negative effects. Or put it another way, the longer we delay, the higher the ultimate cost is gonna be. The second thing that I've said is that this demographic shift of aging baby boomers combined with the recession have really combined to shine a very bright spotlight on this retirement issue and on the need to build financial security that lasts a lifetime. I indicated that obviously the issue of financial literacy is a very important part of this, given the new requirements of individuals to bear some of their responsibilities. We have to increase financial literacy. And then finally I am pointed out that there are some solutions, if you will, in building or outlining what a financial, financial secure retirement system would look like for the 21st century. So let me stop now by thanking you again for your attention. Thank you for allowing me for the opportunity to speak in this wonderful school. And I look forward to being able to answer as many questions as we can in the time that's allotted. So thank you all very much. And I'll turn it over to our moderators. Thank you. Thank you very much for your lecture. We do have questions from the audience and if you still have additional ones, please raise your hand and they'll be collected. My name is Don Lynn Kacer. I'm a second year master's of public policy student here at the Ford School. And Mr. Ferguson, our first question, what suggestions do you have regarding education programs geared towards planning for retirement? How early should this education begin? And should it be a part of the federal education policy? Mike, that's a great question. I think first it should begin as soon as possible, if you will. Folks, when they get their first job, I think should start to be educated on these issues. Obviously, I've also indicated the importance of general financial literacy in K-12 in high school. But if we could have a system in which there is first mandatory enrollment and then associated with that education at the very, very beginning, I think that's helpful. And the education, I think, should be around a couple of things. One is a general sense of figuring out what runs risk tolerance is. Two, figure out, there are some benchmarks around how much one might wanna save and invest. The third is the importance of diversification. Because a lot of individuals, as we discovered, haven't understood the value of diversification. And then the fourth is starting to educate everybody on what a life cycle might look like. Because I think many people underestimate how long they may well live in something that we might call retirement and therefore tend to think that they're gonna save too little. And then the fifth thing, or they tend to save too little. And then the fifth thing obviously is the importance of thinking about not just building this big nest egg, but what it means for a lifetime income. I do believe that it should be built into national policy. I will tell you from my experience at the Fed where we did make financial literacy one of the priorities. It is very, very difficult, even if it's a priority of a big and important financial federal agency to figure out how to actually make it come to life. And I think, as I've thought about it, part of the challenge is that so much of education policies actually developed at a state and local level. And so what happens there, I think, I think is as important as what's happening at the federal level. Thank you. Our next question, is the social security age destined to rise with life expectancy and should it? Well, gee, thanks for asking the easy questions. The ones that are not all controversial. I would say honestly, I do believe that over time, the social security age is destined to rise with life expectancy and with the ability of people to work. In fact, I think all of you probably know there was a commission from many years ago that's already put us on a path towards a gradual increase in retirement age. I think we're gonna have to take another look at that. Now, the other thing that's important to say is, while that may be true for many folks, there still are a number of people in American society for which delaying retirement is almost physically impossible. And one of the things that happens, all of us who do these sort of jobs that require a lot of intellect, but not much in the way of physical activity. The moving of the mouse is not for many of us heavy work. We ignore that even on our campuses and certainly in many parts of America, there are a bunch of people for whom delaying retirement is really not an option. And so we have to figure out how to be sensitive to both sides of this. Because folks who influence policymakers tend to be those that sell short, I intend to, and therefore all of us can work a little longer. True for a lot of American society has changed over time, but I do worry that those of us who do sort of white college jobs would get folks who do other kinds of white college jobs or blue college jobs or pink college jobs, as they're called. So I always hasten to add, while I think Social Security Retirement Age is gonna have to increase, how that works for everybody, I think it's gonna be one of the challenges that we have to work through. Thank you. Our next question, what are your thoughts about the on-core career idea? New meaning for meaningful work, often part-time for older adults. What policy changes would support more on-core careers? I think the so-called on-core career, the second actor, whatever it's called is pivotal, frankly. I think it creates a great value for the individuals involved or has a possibility of doing that. There are a number of things, I think, to stand in the way of that. In some cases, depending on how you work and where you work, if you retire, can you then come back as a consultant or in a part-time role as a question of policy that affects some institutions? I think bigger than that is really, there's not a business model yet that's evolved for having both full-time workers at a certain age and then so-called on-core workers. And so older folks who still wanna be in the labor force find themselves in the forms of consulting, if you will, where there are sole practitioners. So I think the real issue is not a policy issue. It's really understanding how we build models that have in the workplace, folks under so-called retirement age who are working full-time and working together with folks who are part-time, if you will, and doing an on-core job. But I think it's important to have that as a way that all of us start to think about things because it's gonna, I think, be inevitable for lots of folks. And I think it's also good for society. If I can lengthen my answer a bit. In the report, the NS report that Susan and I talked about, there was some work done by a German economist, Axel Borscher-Pan, who got his PhD at MIT, but has done some very interesting work in some manufacturing and car factories in Germany, pointing out that teams that had people of different ages and different generations were more productive than the teams that have only one generation. And this is just sort of a special case of the general knowledge that we've learned. Actually, I think a University of Michigan professor has written books on this, on the value of diversity in the workplace, leading to better answers and more productivity. So we think of diversity in different ways around gender and race and other things, but we shouldn't forget generational diversity as well, and Axel's work actually shows that in a manufacturing atmosphere, productivity actually goes up if you have intergenerational teams. Thank you. Our next question, with regards to securitizing income streams in retirement with annuities and the low annuity participation rate you mentioned earlier, how can we secure but simplify these annuity products? And will this simplification increase participation in your opinion? The answer is one, we do need to simplify annuity products. Obviously, we at TI-CREF have a very good and simple annuity that works very well. And in fact, there's gonna be a report that comes out that looks at our participants, and I don't have the report, but I've got some of the data from it. And it shows that about 40% of our participants in their retire typically take annuity income as their first draw from their retirement assets. And then we also see that many people take more than one version of retirement income and they often do what's called laddering their annuities. And the reason I talk about our statistic that is about 40% is that's clear proof that a simple annuity that's in the plan and for which there's advice can get people to have the right kind of outcome. Society at a large, I think, therefore can learn a couple of lessons. One, simpler annuities, because a lot of the folks who talk and give advice are anti-annuity because annuities are very complex and can be expensive. Secondly, we've gotta make annuities part of the plan. One of the things that happens in the 401k world is you have this big bucket of savings you get to so-called retirement age and then you have to make an annuitization choice. And that's a hard choice for lots of people to make. And then I think the third thing is really understanding better than we currently do what it is that holds people back from annuitization. So simplifying is one of the answers. There's a professor at the University of Illinois named Jeff Brown who has talked about framing. And if you talk about annuitization, people aren't very interested. If you talk about guaranteed income for life, they're quite interested. I think we also need to understand some of the, I would just call them not framing, but sort of the more rational things that people worry about when it comes to annuitization such as having what's called an economics of a quest the desire to sort of leave money to others and you have to build annuities that allow that to happen as well. So there's putting annuities into the plan, simplifying annuities, and then understanding and maybe adjusting the products so that we can respond to why it is that people do not annuitize. Thank you. Our next question is actually from Twitter. How do we assure women's economic security giving their lower lifetime incomes? That's, I love modern technology. There's a question from someone named Twitter, so. My kids, I have a 21 year old, they'd be appalled I'd make such a stupid joke, so. I know what Twitter is. That's a very good and a very important question. So let me tell you what we've tried to do, what we have done in our company, recognizing these issues around gender differences. We've actually developed a training session, financial literacy symposium, I guess you'd call it a seminar, for women that's taught by our women professionals. And that is starting to show some real traction just in terms of the number of people who are interested in doing this. And the most important statistic is that after these general seminars, which last for about an hour, an hour and a half, something of that sort, we're getting a very, very large turnout of folks who want to, women who want to sign up for counseling sessions, and then they're tending to take action. They're tending to save more, diversify their portfolios and other things. So I think the, now, we are a microcosm of what I think has to happen more broadly, which is one, recognizing that there are gender differences and sometimes hard to talk about gender differences without seeming to be doing things that are inappropriate. But if there are, then one should recognize them. And two, then understanding with those differences how you leverage them, if you will, into getting people to take action. And I think we started to figure out a little bit of that. How we do that at a national level, I think ultimately it's up to institutions such as this and such as mine to partner together to give women a chance to understand these issues better. Now, easier said than done, works in places where you've got institutions like University of Michigan and TI-CREF. What we do more broadly at a national level, I do think it goes back to K to 12 financial literacy for one thing. I think it goes back to that early enrollment moment where we start immediately to identify what the differences might be. So those are some of the other things that we can do. But the challenge here is that there really is no silver bullet because giving financial advice at some broad macro level is not nearly as impactful as what you do sort of case by case. And that's sort of a big challenge. So I've got, we know a little bit of what one can do if you've got the resources. I can't say that there's sort of an obvious national answer that's gonna work for half the population, but it's gonna be very important for us to start to look at that issue. Thank you. Our next question, the trend towards defined contribution retirement seems to be accelerating. Do you see regulations increasing in step to monitor and regulate the providers? I hope so in the following sense. And I've seen this in a couple of states. I haven't talked much about it. One of the states that's made a big change has been Rhode Island. And what Rhode Island has done is create a hybrid plan. And so I think this trend towards defined contribution can be dealt with if there are regulations such as the, or advice and then maybe regulations. So the GAO advice about a new organization leading to regulations from the Department of Labor, for example, might be one way to do that. Or if states, states are one of the places where the move from DB to DC is occurring most rapidly, follow the models towards a hybrid plan as opposed to going to a pure DC plan. So I think since a lot of this is happening at those levels, that's where it can be done. And then as I said, the Department of Labor, since it oversees ERISA plans, if it really pushes for more new organization in the plan, can help by that kind of regulation to create a hybrid plan that has both a DC element and then a DB element to it. Thank you. Our next question. I have heard that low interest rates are forcing retirees into riskier investments. Your comments? Well, the answer is that is true. Let me be a little clearer about it. Low interest rates are forcing in some sense everybody into riskier investments. It's one of the reasons why we're seeing a rallying a stark market. It's one of the reasons perhaps why we're starting to see a pick up in housing. But I would be a little cautious because then what happens when one says that is there's sort of a natural sense that, well, that means we must have higher interest rates right away. So recognize for those, this is now getting into monetary policy issues. So low interest rates do have the effect of driving everybody into riskier investments. On the other hand, the reason, a reason I think that the Fed is engineering very low interest rates right now is to create sort of a cushion under the economy. And so it's a trade-off that they're making, frankly. Now, what does that really mean? I think the fact that we are currently having very low interest rates validates the importance of having a diversified portfolio. Even as you get older, even as people get into retirement, there's still a reason to have some equity exposure as well as fixed income exposure. I think people think, well, as I get older, you'd certainly want to move more towards fixed income. But having equity exposure, even as you are in retirement, gives you a chance to offset momentary of low interest rates by having an increase in the equity values that you might have in your portfolio. And so the real message out of all of this is because you cannot predict what the financial markets are gonna throw at you during the course of retirement. It's still important to have a diversified portfolio. There is a danger in being, even as one is retired, or a particular one is retired, overly conservative, just as there is a danger in being sort of overly eager to take risk. And this very low interest rate environment is sort of a proof of the importance of having diversification as a way to deal with different kinds of economic environment. Thank you. Our next question, bear with me, it's a little bit of a long one. How much of the increase in the stock market over the past 30 years is attributed both to the change from company pensions to IRAs forced entering into the stock market. And as the population ages and begins withdrawals from these IRAs, how much of a decrease in stock market is likely to occur? Okay, that's a great question. Let me try to answer the second part. Parsley, because I don't know the answer to the first part. So I should at least go where I think I know the answer. So on the second issue, there is I think what we on our study team, that NAS study, think of as being a myth out there that as baby boomers retire, they're gonna dump their stocks and the stock market is gonna collapse. We think that's not the likely outcome. And that there'll be other forces that will drive equity markets, but it's not gonna be the aging and the baby boomer population. The reason that we believe that is that equity markets in particular, really quite global, well, a number of things. First, we don't believe based on the diversification that I've just talked about that individuals are gonna be sort of dumping their stocks. They will be selling them gradually over time as they get older, but they'll still hold on to some as they diversify. Secondly, even among older folks, there are different risk profiles. And so we shouldn't imagine that everyone is going to reach a certain agent and start to act in the same way. The third is, remember one of the things I've said is we may have to younger people and maybe in some sense all of us may have to increase savings. So even as some folks are selling their stock in order to, their equities in order to fund retirement, there'll be other people, younger people, a smaller cohort, but increasing the savings rate may offset some of that sell-off, if you will. And the final thing, equity markets in particular are quite global. And as growth picks up around the world, even though they have demographic challenges, as the rest of the world becomes much more middle class, as they are forced to save more, and as they think about diversifying their portfolios and overcoming what Susan and other international economists would call a home bias in investments, they will naturally look to the US market as the deepest and most liquid. And so I think this statement that equity markets are going to the US in particular, be on a downward trend because the demographics is false. It's a myth. So the first part of the question, I have to be very honest, I honestly cannot tell you how much of the rise in equities was driven by the increased use of DC plans. I'm not sure that anyone can really tell you that. We can tell you the amount of equities being held in DC plans, but how that drives pricing, as all of you know, depends on supply and demand dynamics that are global. And so while this has been an interesting trend, just as I don't think that the aging of the population is gonna lead to a huge sell-off, it's hard for me to say that the big rally that we've seen in equities over the last period of time is being driven by aging populations. In fact, as one thinks back on economic history, there have been lost decades in equity markets that are sort of inconsistent with the notion that aging baby boomers have been, I'm sorry, that young folks, baby boomers aging through the population from the 60s to now have been leading to this sort of steady uptick in equity evaluations. Because if you look at what happened to equities, there have been periods in the 70s when they were really flat, then they rallied, then they're flat, then they collapsed. So it's all the behavior of the equity markets, I think, belies the notion that somehow or another, it's demographics that really were driving what's going on. I think there are many other forces, including policy forces and the other kinds of dynamics that drive markets. And demographics, I think, was probably a relatively small part compared to other things. Thank you. Next question. I worry that our children cannot save enough for retirement due to the skyrocketing cost of undergraduate education. Your comments? I worry about it too. I wish I had a sort of more insightful comment. I think the issue, and I've talked to some people on various campuses about this, we really are gonna have to rethink the financing model for higher ed. And that question sort of takes me into that space. Because just as I've talked about the threats of retirement, not this campus, this campus actually has been, I think, in better shape than many others. But we cannot continue to depend on seven, 8% increases in tuition year after year after year in order to drive the higher ed model. Frankly, I think the higher ed model also is not gonna be able to depend for research support from the government as much as they have in the past, just because of the general fiscal challenges that we confront. There are a number of us who think about endowments and we're not quite sure that you're gonna see double digit increases in endowments as well. And so I think higher ed, generally speaking, not a particular institution, is gonna have to really rethink its financing model for lots of reasons. And one of them is that young folks, our children, are not gonna be able to afford the kinds of increases that we've thrown at them in the higher ed space. Now, my impression based on conversations I've had on this campus is that the University of Michigan has actually started to come to grips with this issue, has started to think about sort of gradually keeping cost under control for sure. I suspect that's not popular with everyone, so I'm not getting into what are the political dynamics on the campus maybe. But I think the point I'm making is that a well-managed institution can think about a multi-year strategy for trying to gradually adjust its approaches, including lighting up, if you will, on the big increases in tuition, because I agree that our children, or in some cases grandchildren, will have a hard time affording the kinds of education that I did in folks in this room have had. Thank you. We also have another question from Twitter. How is the uncertainty in retirement planning likely to affect labor management bargaining in the near and midterm? Yeah, that's a great question. I think we've actually already seen that to some degree. Actually, some of you, and many of you, if any of you are football fans, you know that one of the disputes that existed between the NFL and the referees union was around moving to a 401k-type plan. And so we see that being very, very visible. I think the reality is that this issue around retirement and retirement security is gonna continue to be an important challenge in labor management relationships. One of the reasons that I am so enamored of the hybrid model is that our experience has been that it seems to be a middle ground that brings together labor and management, because it can create more certainty about what the employer is going to have to pay in by creating a DC-type plan. But a hybrid model that has an annuity or other kind of DB option creates some certainty about retirement outcomes and risk sharing for the employee. And so I do think that these hybrid models that combine DB and DC are a good way to try to break through some of the natural tensions that exist or could exist around retirement security for management and labor. And we've seen already that at the state level, local level, et cetera, this has become a really hot issue. Thank you. And this is going to be our last question. What are the effects of immigration policy on the retirement crisis? Some have suggested that net immigration into the US has to a certain extent made up for the declining birth rate. It has to a certain extent because of immigrants, net immigration has tended to be somewhat younger than the existing population. But one has to recognize that even when immigrants start to get older, no one's going to be perpetually young. And so while it may at the margin be helpful, I'm not sure one should look at that as the core solution. It is part of the solution space. One of the reasons that we have a relatively younger population compared to Japan or China or other places is that immigration has helped us over time. But once you get a stock of immigrants, by definition, they're going to age as well. So you still have an aging population. You may start from a slightly lower base, which is one of the things that's helped us. I don't want to go too far into immigration policy, but one of the other things that our report says is that a solution to all of this, given the fact that we have a smaller cohort of younger people that will be supporting all of us aging baby boomers, is we have to create greater productivity in society. And one can think about immigrant policy, immigration policies that can either be helpful in that regard or neutral in that regard. And so I think the real issue around almost any policy it has to do with refreshing the population has in part to do with how do we create much more productivity in society. So it's not just around age. It's also thinking about how you make those folks more productive. Well, thank you all very, very much. These have been great questions and I really have had a wonderful time here. And look forward maybe to returning. I look forward to school at some point in the future. So thank you all very much. Thank you very much. That was terrific. It is really wonderful to be able to have such a cleared and candid discussion of very important issues. And we're particularly pleased to have this important topic addressed as part of our policy talk series. So thank you very much. I'd also like to thank John Tertiary and Don Lynn Kacer for framing the questions and in particular our audience for pulling together such a wide range of very thoughtful questions that enabled us to expand the conversation this afternoon. So thank you both to those who are here with us in the room and also to those who are watching online. With that, let me ask you to help me end the session by giving a final thanks to Dr. Ferguson for his presentation. Thank you very much.